BURLINGTON, Ont. – Newly installed Bank of Canada governor Stephen Poloz on Wednesday tried to rally business toward the kind of spending he says is needed to bolster the economy, while giving no signal about any change in interest rate policy.
In his first major speech since taking over from former governor Mark Carney earlier this month, Poloz preached the virtues of “stability and patience,” saying the central bank’s long-standing target of low, stable inflation remains “sacrosanct.”
“We have already set the table: interest rates are low, there’s plenty of stimulus in the system,” Poloz said at a news conference after a speech to the Oakville Chamber of Commerce.
“What I’m picking up from my conversations is uncertainty, a lack of confidence.”
Canadian companies have, however, been looking for opportunities in emerging markets, and those markets are growing “reasonably well,” he said.
“The missing link has been the U.S. economy, and that link is coming in. With that combination we think we’ll see the kind of foreign demand that we need to cross the line into a more confident mindset.”
In the meantime, Poloz attributed Canada’s relatively good economic fortune through the downturn to households that took on personal debt.
“Given the circumstances, it was a good thing that households had the capacity to expand their spending — this provided the necessary cushion from the worst effects of the global contraction,” he said in his speech.
Rather than the sometimes hectoring tone of previous warnings about unsustainable debt levels, Poloz said the bank has “urged homeowners and other borrowers to do the arithmetic” on managing their debts when interest rates return to “more normal” levels.
The former head of the Export Development Corp. appeared relaxed and personable in his first public appearance in his new role, joking during the question and answer portion of the speech and taking a light-hearted approach to audience questions about the bank’s rate announcement on July 17, promising to “think about it really hard between now and then.”
Dawn Desjardins, assistant chief economist at RBC, said Poloz’s speech maintained many of themes he presented to the House of Commons finance committee earlier this month, and didn’t provide any indication of a possible change in interest rates.
“To the extent that the Canadian economy follows the script, I don’t see a significant change of what they’re going to say July 17,” she said in an interview.
“To be sure, Poloz’s speech displays that his experience at the Export Development Corporation will play a part in shaping his perspective on the outlook for the economy,” Desjardsins added in a note.
“That said, he remains firmly committed to the Bank’s mandate of price stability.”
This spring, Canada’s central bank lowered its 2013 growth forecast by half a point to 1.5 per cent and announced in May that its key lending rate would remain unchanged at one per cent.
The bank has estimated 2014 economic growth will be 2.8 per cent followed by 2.7 per cent growth in 2015.
Poloz noted that “since the onset of the recession, there has been limited net creation of businesses” and exporters have been particularly hard hit, with exports more than $100-billion lower than expected at this point in the economic recovery.
The sustained recession knocked many exporting businesses out of operation, but other areas of the economy are rebuilding.
“The good news is that the balance sheets of corporate Canada are healthy and the capacity to invest exists,” he said.
It’s not a new refrain. Prime Minister Stephen Harper groused last fall about money sitting “on the sidelines” during a G20 economic summit in France, former bank governor Carney spoke of all the “dead” money that remains uninvested and Finance Minister Jim Flaherty has also weighed in on fat corporate balance sheets.
The Bank of Canada governor gave his speech shortly before the U.S. Federal Reserve and his counterpart, Fed chairman Ben Bernanke, released their long-awaited policy statement.
As expected, the Fed kept a key lending rate unchanged but offered a slightly more optimistic outlook for the U.S. economy and job market — both good news for Canada, particularly exporters who sell to the United States.
In a statement following a two-day meeting of its top policy makers, the Fed said that the U.S. economy is growing moderately. And, for the first time since the fall, the Fed said the “downside risks to the outlook” had diminished.
Poloz declined to venture a guess as to when the Fed will decide it has done a good enough job stimulating the economy and pull back, but said Canada was happy with the progress.
“We will watch it with pleasure because it will mean that our major trading partner is getting stronger and stronger and we will feel those positive effects and that’s the part that will matter more to us, that the economy is gathering extra momentum from all directions,” he said.
Some economists have begun revising Canada’s growth outlook upward.
Royal Bank of Canada raised its estimate for 2012 economic growth to 1.9 per cent Wednesday morning, and said growth for 2014 will be about 2.9 per cent.
Also Wednesday, the Bank of Montreal released its small business confidence report, which found that 62 per cent of business owners have a positive outlook for 2013, especially those in Atlantic Canada and British Columbia.
— With files from Bruce Cheadle in Ottawa.