In the Bank of Canada governor's words: excerpts from Poloz interview

OTTAWA – Bank of Canada governor Stephen Poloz spoke with The Canadian Press on Wednesday. Here are excerpts of that discussion, in Poloz’s own words. (Some responses below have been edited to condense his responses.)

CP: You’re three years into your seven-year mandate, what is the most challenging issue you’ve had to deal with in this job so far?

Poloz: Well, I don’t know, it’s hard to pick. We’ve been in a challenging situation almost from the beginning, the economy not quite performing according to what we thought and certainly the global economy being the main reason. And so, throughout, it’s been a pretty challenging situation to explain to folks.

So, there’s always been that, sort of, uphill battle to help the people understand and then actually give them something to grasp on to, which is the future dynamics, which we believed the seeds had been sown and we just had to be patient and possibly nurture a little bit more.

We actually got to the stage, say, a year and a half ago where we were starting to get reasonably confident and then along came the terms of trade shock, which kind of delayed us by another year or two, arguably two years.


CP: As Bank of Canada governor, what keeps you awake at night about the economy?

Poloz: Well, there are things… The world continues to have plenty of capacity to disappoint us. The list is as long as your arm.

We went through the first two months of the year with lots of turmoil, downside volatility and so on just as people were coming to grips with, ‘Is China slowing down a lot as opposed to a little? Is the U.S. starting to slow down, too? Is that a global slowdown?’

Those things do keep you awake at night. Markets can be wrong, but usually they’re right…

You treat all of that seriously, so it means a lot of digging and not being routine about it. You have to really dig down and make sure you’re comfortable with those things.

That keeps me awake and it means, therefore, that… if the world, especially the U.S., somehow falters, then of course so will we — again.


CP: We’re hearing so much about the Panama Papers … (is) there a role somehow for the Bank of Canada, or perhaps central banks in general, in the fight against tax evasion, or looking at tax evasion in the sense that perhaps this could be on such a big scale that it could have a material economic impact?

Poloz: Well, so far I haven’t thought about it as a monetary policy issue or in that frame. But I guess where it does touch is similar to thinking around the financial system itself. More broadly, it’s a question of the erosion of trust in the system as a big thing, which is the financial system and that layer, if you like.

And so this, of course, is another blow to that kind of trust and it’s patently unfair and so on that an ordinary citizen with a decent income pays the taxes and somebody with a much-larger income somehow finds a way around it. So, I understand that and it’s a question of what can we do as policy-makers to help buttress trust.

So, a lot of the Basel reforms for the global banking system is about that — it’s about putting better rules in place that not only make the system more secure, but should make people feel more confident. So, there’s a bit of a trust factor.

Frankly, I don’t know about the Panama thing. There are policy-makers, I’m sure, that are very focused on it and we’ll have to see.


CP: What do you think about efforts to fight climate change and how they could impact Canada’s capacity?

Poloz: We expect on that front to see things happen over the foreseeable future that will affect monetary policy one way or the other…

Things like cap and trade or carbon pricing, those kinds of things obviously can have a direct impact on the inflation process. But just like any other tax they only happen once, or they’re temporary, so we wouldn’t be swayed by them, if you like, because they wouldn’t affect underlying inflation.

Or it can enhance or alter processes of structural adjustment in the economy. And so, just as we’re working today with a structural adjustment from energy to other sectors, other sorts of things along that type could be set in motion by climate change or policies related to climate change…

But is there a role for us? Not exactly. Just as a responsive role.


CP: What can be done to increase or improve Canada’s productive capacity?

Poloz: The big things in the past have been things like trade liberalization, trade agreements. So, international trade agreements open up a lot of scope for companies to operate in a more-optimal fashion and so, that’s kind of like top of the list, if you like, as a policy move.

Internal trade is less, actually, free than our external trade in many respects. So, think of any trade barrier as the sort of thing that also amounts to a barrier to growth, or something that holds back growth.

So, those are the things on a policy-maker’s list of want-to-dos that would over time improve productivity.

But ultimately the biggest dollop of productivity comes from brand-new companies who start from nothing and suddenly are producing a lot of stuff with just a few people — starting in the garage or whatever. So, we connect firm creation to the productivity gains. Existing companies incrementally increase productivity, but new companies have these big leaps of productivity.

There is growth in the population of companies, better than we had during the crisis and soon after, but it’s still quite slow.

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