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Bank of Canada Governor Stephen Poloz (right) and Finance Minister Bill Morneau (left) speak during a news conference on Parliament Hill, on March 18, 2020 in Ottawa.

DAVE CHAN/AFP/Getty Images

As Stephen Poloz sat at a podium on Wednesday with Finance Minister Bill Morneau telling reporters about the massive support package that Ottawa unfurled to aid a distressed Canadian economy, perhaps the biggest surprise of the entire spectacle is something the Bank of Canada’s Governor didn’t say.

Mr. Poloz talked about the range of pretty arcane financial market measures that the central bank has put into action in the past few days to keep “credit channels” well-greased and keep bank lending flowing to increasingly needy businesses and consumers. “Back plumbing,” he called it – the necessary if unglamorous mechanics of keeping the financial system from gumming up while the government wrestles with an economic aid package in the face of the COVID-19 pandemic.

Yet the Governor conspicuously didn’t drop the shoe that the markets very much expected him to drop – the one he dropped the last time he gave a joint news conference with Mr. Morneau, just four days earlier. He did not announce another interest-rate cut. On a day when the federal government unleashed its big guns, Mr. Poloz left his biggest weapon in the holster.

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Okay, so it wasn’t entirely a surprise by the time the news conference began – which itself was surprising. The bank took the extraordinary step of forewarning reporters via e-mail that Mr. Poloz wouldn’t announce a rate cut or any other new measures at the news conference.

Now, the central bank never says what it’s planning to do, or not do, in advance. The fact it felt compelled to do so on Wednesday just speaks to what deeply weird times we are in. At this point, we’re actually starting to get used to the Bank of Canada not doing what we expect when we expect it.

Yet ever since the U.S. Federal Reserve’s massive move last Sunday (Sunday!) that sliced a full percentage point off its key rate and took it down to near-zero, markets have fully expected the Bank of Canada to follow the Fed’s lead and make another cut to its own rate – at least to 0.25 per cent from the current 0.75 per cent. They had assumed Mr. Poloz would be in somewhat of a hurry to do so. It’s now pretty clear that he’s not.

Mr. Poloz signalled on Wednesday that the most important role for the Bank of Canada right now isn’t to stimulate economic activity through still-lower rates – which, frankly, would have minimal effect when big swaths of the economy are effectively shut down. And, even more important, wouldn’t work anyway if the cuts couldn’t be properly transmitted through a misfiring financial system, which has become a legitimate concern.

Rather, the bank’s priority now is to use its might to maintain stability in the financial system, and to keep the credit taps as wide open as possible so that businesses and consumers have access to the funds that will see them through this mess.

Not everyone agrees. Many economists feel that, given the seriousness of the situation, the central bank should cut rates as deeply as it can as soon as it can. Rate cuts take months to work their way through an economy, they argue; the longer you wait, the further you fall behind.

But one statement from Mr. Poloz on Wednesday explains why he’s not subscribing to that argument:

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“We know that this is a temporary thing. We don’t know how long or how big, but it’s temporary.”

If you’re a central bank boss who believes that the shock your economy is experiencing will pass before those rates have a chance to truly sink in, slashing rates further ends up becoming more for show than for impact. Investing your energies in financial system stability, on the other hand, can have a much more immediate impact to address the profound but, hopefully, relatively short-lived fallout from the COVID-19 shock.

Mr. Poloz also talked about the need to be “nimble and adaptable” – which may provide a second clue to his preference against following the Fed’s lead on rates.

Through much of his 6½ years as head of the Bank of Canada, Mr. Poloz has stressed the independence of Canadian interest-rate policy from that of other central banks, especially the Fed. He has always seen a separate path for his policy as an important tool in applying rates to help guide the Canadian economy.

The last thing he would want, especially at a time when policy flexibility is paramount, is for the markets to start believing that the Bank of Canada would follow a rate path that the Fed had laid out for it. An immediate cut in the days after the Fed move would have sent the wrong signal – one that the Bank of Canada would have a very hard time undoing in the coming weeks and months.

But by passing over the obvious opportunity to cut on Wednesday, Mr. Poloz has effectively de-linked Canadian rate policy from the Fed’s rate timetable in the minds of the markets. In doing so, he may be buying himself some crucial room to manoeuvre when he most needs it.

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