Stephen Poloz has an admission about the elaborate and occasionally bizarre economic metaphors for which he has become notorious: They're as much for himself as for anyone else.
"Partly, it's not me explaining things to people, it's me explaining things to myself," the Bank of Canada Governor told The Globe and Mail in an exclusive interview conducted at the bank's Ottawa headquarters last Friday.
"When you say, 'What's going on here?' someone in the [Bank of Canada] staff is going to come up with an answer, and it looks like rocket science," he said. "I may get it, but I need to internalize it. … So I often reach for a parable or a metaphor that helps me play it back to them.
"It often oversimplifies the thing," he said. "But that allows me to internalize it and remember it. And then those things kind of spill out when someone says, 'What do you really mean?'"
Some critics, and even Poloz allies, see his analogies – which have included likening economic cycles to simmering pots of spaghetti sauce, and the overextended housing market to a damaged tree – as problematic in a business accustomed to spare, rigid and precise word choices.
Mr. Poloz is looser and more colourful with his language, and that makes some central bank watchers uneasy.
But his biggest recent communications problem stemmed from something he didn't say. The bank's conspicuous lack of forewarning before cutting interest rates in January rattled financial markets, which had gone more than four years without seeing a rate change. The markets quickly swung from expecting no rate changes, to pricing in a near-certainty of additional rate cuts in the coming months – before Mr. Poloz's Feb. 24 speech and the bank's March 4 rate-decision statement changed that view.
"Certainly you're putting your finger on something," Mr. Poloz said, when asked if there have been issues surrounding communicating his message, especially with the January rate cut. However, he suggested the problems at least in part reflect a lack of clarity in the economy itself, which has spawned a range of views – something, frankly, that he encourages from the markets.
"There are debating points in this story. There's a real 'market.' You can't expect everybody to agree immediately and 100 per cent," he said. "This is a hard thing to understand, it's a hard thing to analyze and it's a very uncertain outcome. Those kinds of nuances will affect market expectations."
In a commentary to be posted on her blog Monday, prominent Canadian economist Sherry Cooper, chief economist at Dominion Lending Centres and a former official at the U.S. Federal Reserve, defended Mr. Poloz's handling of his policy message.
"Everyone knows that central bank action is data dependent. When the data surprise, all bets are off," Ms. Cooper said. "All this ruckus boils down to the fact that Bank of Canada watchers were wrong and don't like it."
Mr. Poloz indicated that he and the market are now more or less back on the same wavelength. Overnight index swaps in the derivatives market, a proxy for the market's expectations on the direction of the Bank of Canada's key interest rate, show that traders are pricing in only about a 20 per cent chance that the bank will cut rates again at its next policy decision in mid-April.
"At the moment [of the January cut], it was a surprise because we had a much bigger story to tell than people were expecting. They needed to digest that. Over the last six weeks, people have figured it out a lot better."
Mr. Poloz also stressed that he has no intention of going back to his predecessors' old ways of communicating.
He is committed to shedding, at least in non-crisis times, the practice of "forward guidance" – in which a central bank provides a clear indication of the direction, timing and conditions for its next interest-rate move – arguing that it had become a crutch for financial markets. And he won't adhere to the typical central-bank rate policy statement that sticks almost word-for-word to the statement that preceded it, with only a handful of words or phrases altered slightly to hint at the bank's changes of thinking.
"I don't think that's a helpful dialogue," he said. "We've evolved toward [rate-decision statements] where we tell a fresh story, as we would in a conversation.
"If you have any questions, ask us," he concluded. "We're willing to talk about these things."
David Parkinson