Note to members of the House of Commons Finance Committee: You should be prepared to be at your best Thursday. There could be more interest in your proceedings than usual.
Alberta Conservative James Rajotte’s committee is scheduled to interview Stephen Poloz, the new Bank of Canada governor, for two hours Thursday morning. Call it a coming out party. Mr. Poloz is little known at home and a total mystery abroad. Parliament’s webcast service could experience heavier traffic than usual.
Mr. Poloz hasn’t been heard in public since Finance Minister Jim Flaherty unveiled the government’s surprise choice to lead the Bank of Canada at a news conference a month ago. That appearance revealed very little. Mr. Poloz met most questions with some variation of “give me some time to get settled first” and “it would be inappropriate to answer that while the current governor is still is in place.”
Canada’s new central bank governor now is settled, and his predecessor, Mark Carney, is readying his move to London to take over the Bank of England. The spotlight now belongs entirely to Mr. Poloz. Here are some questions he should be prompted to answer:
Why did you get the job?
Mr. Flaherty called Mr. Poloz an “excellent” choice. David Laidley, who led the Bank of Canada board of director’s search for a new governor, noted that Mr. Poloz has “significant knowledge” of financial markets and monetary policy, and “extensive management experience.” Mark Carney praised his replacement’s “sharp insights” and “sound judgement.” This is the stuff of cover letters and introductory speeches. The fact remains that neither Mr. Flaherty nor Mr. Laidley offered a detailed explanation for why Mr. Poloz, who hasn’t been anywhere near a central bank in almost two decades, was chosen over Tiff Macklem, the No. 2 at the Bank of Canada and the overwhelming favourite to get the job. When asked why he thought he got the job, Mr. Poloz cited his “passion” and his experience at Montreal-based research firm BCA and at Export Development Canada, which he joined as chief economist in 1999 and had been leading since 2011.
Is Bill C-60 a threat to the Bank of Canada’s independence?
Mr. Flaherty’s omnibus budget implementation legislation includes a provision that would give cabinet an effective veto over hiring decisions at Crown Corporations, including the Bank of Canada. New Democratic finance critic Peggy Nash is worried such oversight would compromise the central bank’s ability to pursue its inflation mandate free of political interference. Ms. Nash surely will ask Mr. Poloz for his opinion, and his answer will be telling. Mr. Flaherty took an unusually public role in the selection process for Mr. Poloz, and then failed to justify his decision to shock financial markets by choosing him over Mr. Macklem.
Is Canada’s dollar too strong?
The Bank of Canada has been crystal clear: Canada’s economy will struggle until exports rebound. Mr. Poloz, who said he met with some 70 Canadian executives last year in his capacity as chief executive of Export Development, should bring some important insight on what it will take to achieve liftoff. Under Mr. Carney, the Bank of Canada acknowledged that the dollar’s strength is hurting competiveness. But they put equal emphasis on woeful productivity rates and overdependence on slower growing markets such as the United States. Some market participants think Mr. Poloz could be less doctrinaire when it comes to letting market forces set the exchange rate. Yet this perception could be based on old thinking. International trade is all about supply chains. Manufacturers are as likely to import components as source them down across town or make them themselves. Yes, a stronger dollar makes Canadian goods relatively more expensive. It also lowers input costs and forces companies to face that woeful productivity rate.
Is monetary policy sowing the seeds for the next crisis?
Mr. Poloz surely will be asked to talk about household debt, the housing market and the Bank of Canada’s current tilt toward raising interest rates, eventually. These questions are central to the Bank of Canada’s current interest-rate setting, which guarantees his answers will sound familiar. Mr. Poloz will not want to be seen to be making policy before having had a formal meeting with his senior advisers on the Governing Council. But he should be expected to answer a broader question on how he sees his role in safeguarding financial stability. William White and Paul Masson are among the respected economists who have expressed fear that low-for-long interest rates are dangerously skewing economic activity. Mr. Poloz’s answer could shed light on what worries him most: The present threat of sluggish economic growth or the theoretical threat of a future financial calamity.