OTTAWA – The selection of Stephen Poloz to the Bank of Canada is raising questions about the direction of monetary policy and even the role of the central bank in the Harper universe.
The immediate reaction to the news of the appointment of the 57-year-old head of Export Development Canada was confusion and head-scratching about what message the government was sending.
With little information to go on, markets took down the Canadian dollar a few pegs and observers wondered, mostly privately, if Finance Minister Jim Flaherty and Prime Minister Stephen Harper had not simply chosen someone who would do their bidding.
“You have to wonder,” said Walid Hejadi, an international business professor at Toronto’s Rotman School of Management, saying Poloz’s association with the Ottawa’s expanding trade agenda could leave the bank vulnerable to perception of politicization.
“Only time will tell,” he adds.
To those who know Poloz, the suggestion came off as unfair to a man who had set the central bank as a career goal for perhaps decades.
“They obviously don’t know Stephen Poloz who has a reputation for moral rectitude, and they also don’t understand if that was ever thought to be the case, it would destroy his effectiveness,” said Ian Lee, a professor at the Sprott School of Business who knows him through their dealings with the Ottawa Economics Association.
“Having said that, the idea that you can be truly independent of the government of the day is absolute nonsense,” he added. “The governor is appointed by the government and cannot be running policy that is in contradiction of the government of the day.”
Bank of Montreal chief economist Doug Porter also dismissed the notion, saying the choice of Poloz over Tiff Macklem, the senior deputy governor, likely wasn’t related to policy.
“Generally, I don’t see any friction or tension between what the government is trying to accomplish — moderate growth, debt reduction, and cooler household debt — with where Bank of Canada policy stands now,” he said.
A senior government official, who asked to remain anonymous, suggested part of the shock and speculation stems from the fact that Macklem was made a prohibitive favourite by the media as soon as incumbent Mark Carney announced last fall he would leave for the Bank of England.
That betting line was picked up the economists and market players as well, but it was based on nothing concrete other than perception.
Poloz brings to the table four key strengths: public and private sector experience, leadership experience in a large organization, a rock solid academic background and 14 years at the Bank of Canada in senior roles, including chief of the research division.
A big reason for the surprise — even though he was regarded as the second choice behind Macklem — is that despite more than a decade at EDC as chief economist and then CEO, five years with a private economic research firm in Montreal, and knowledge of the Bank of Canada, Poloz has kept a low profile. As several analysts noted, he has not given a public speech in over a year.
But EDC chief economist Peter Hall, who has worked with Poloz since 2001, says Poloz is an excellent communicator.
“I’ve found puzzling the reports that say Mark Carney is far more charismatic than Steve Poloz — they just don’t know Steve Poloz,” he said.
“They are forgetting he had a very conspicuous role as chief economist and he was the face of EDC at that time (1999-2008).”
Once the name was released Thursday, analysts scrambled to find public statements that might give an indication about his views and where he intended to take monetary policy.
In his last speech, over a year back in Tokyo, he seemed to lament that Canada and Japan were losing export market share due to greater competition and “a strong currency,” a comment which suggested he might favour a softer tone on interest rates.
But economist Jimmy Jean of Desjardins Capital Markets also noted that in 2003, Poloz testified before a Senate committee that “trade flows around the world are dictated much less by exchange rates and more by economic growth differentials.”
The digging also unearthed an opinion piece written by Poloz in 2005 in which he supports the contention — since advocated by NDP Leader Tom Mulcair — that Canada indeed was beginning to suffer from Dutch Disease, a “debilitating illness,” as he calls it.
“In today’s context, the impact on exporters can be profound,” he wrote in 2005. “With central banks acting to keep inflation under control, higher energy prices are likely to cause prices to decline in other sectors.
“The bottom line? Symptoms of Dutch Disease are beginning to appear, with profit margins expanding in the energy sector and contracting in a number of manufacturing sub-sectors.”
Jean believes Poloz, having once headed the bank’s research section, will almost certainly follow where the facts lead.
“The decisions made by the bank is supported by research, so I would be very surprised that he would come in an revolutionize what’s been done over all the years,” Jean said.
He said Canadians and critics need to give Poloz time to establish his own profile at the central bank.