Poloz urges Canadians to hang tight as exports, business confidence rise

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Bank of Canada Governor Stephen Poloz is preaching the virtue of patience.

Making his first public speech since taking over as Governor from Mark Carney in early June, Mr. Poloz appealed Wednesday for Canadians to hang tight as an export-led recovery and rising business confidence gradually take root.

He revisited the patience theme several more times in a news conference that followed his remarks to the Oakville Chamber of Commerce in Burlington, Ont.

The message was clear: The next phase of Canada's recovery from the Great Recession won't be driven by what the central bank does or doesn't do. It's going to come from outside the country – particularly the United States – as Canada grapples with an unusually long and wrenching return to economic health.

"It's a matter of letting Mother Nature do her natural thing," Mr. Poloz explained to reporters, pointing out that the central bank has already "set the table" with ultra-low interest rates.

"At this stage we already have a great deal of monetary stimulus in the system," he added. "I think we need to be patient and allow those confidence effects to work themselves out."

He emphasized the importance of listening to those on the ground – businesses, labour groups and industry associations – to help assess and analyze what's happening in the "real economy."

The speech, and its setting, reflected the contrasting styles between Mr. Poloz and his predecessor. The new Bank of Canada head chose as the venue for his first speech a city in the middle of Ontario's manufacturing heartland.

His speech was full of references to exporters and manufacturers and their importance to the economic recovery – a reflection of Mr. Poloz's roots both growing up in Oshawa, Ont., and as the former head of Export Development Canada.

Mr. Poloz was signalling he has an ear to Main Street, and the concerns and opinions of Corporate Canada, while former governor Mark Carney (whose own first speech was held in Vancouver in 2008) was often seen as attuned to Bay Street – particularly given his own background as banker at Goldman Sachs.

Mr. Carney, whose first speech was in Vancouver, was not shy about urging companies to shift behaviour – to stop sitting on "dead money," for example, and boost investments, or to diversify exports to emerging markets. Mr. Poloz's approach appeared softer.

He talked instead of "healthy balance sheets" being necessary and said he understands why companies are delaying investments in the face of a long and uncertain recovery.

"Corporate Canada, like the rest of us, are unsure about the future," he said, and so if they're putting serious money on the line "they want to be reasonably sure."

In his speech, Mr. Poloz expressed confidence that Canada is seeing early signs of the export-led pick-up – particularly to the U.S. – that he said will eventually drive growth here.

Mr. Poloz clearly wants people to understand that it's now "a foreign story and an external story," said Sébastien Lavoie, a former Bank of Canada economist now with Laurentian Bank Securities in Montreal.

So while the central bank's official "bias" may be for higher interest rates, Mr. Lavoie said Mr. Poloz doesn't seem eager to start ratcheting them up any time soon.

Mr. Poloz offered no hint on the timing of an eventual return to higher rates, even as U.S. Federal Reserve chief Ben Bernanke signalled Wednesday that he is preparing to start winding down years of easy money and so-called quantitative easing.

He repeated earlier warnings – both from him and Mr. Carney – that interest rates will rise "at some point."

He also said the bank's 2-per-cent inflation target, which he described as "sacrosanct," offers built-in flexibility to weather the current bout of post-shock disinflation. The bank's next rate-setting date is July 17, and few economists anticipate a change in the central bank's target overnight rate, stuck at 1 per cent since 2009.