Free Trial

Bullish Outlook


Trend Needle Still Points South


US-ASEAN Summit Concludes


Risk-On Sentiment Dominates

Real-time Actionable Insight

Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.

Free Access
Photo by Jason Leung on Unsplash
MNI (Ottawa)

Global central banks may face pressure from governments to tolerate some unhealthy inflation that makes it easier for them to run deficits, former Bank of Canada Governor Stephen Poloz told MNI.

Poloz, now a special adviser at the law firm Osler, Hoskin & Harcourt, said companies he meets with are worried about the potential for rising taxes, debt and more inflation pressures. "I see these three things as highly linked," Poloz said. "Historically when government debts have gone up a lot and become really high as they have globally during the pandemic, they are still rising of course, there has been a tendency for inflation to break out in places around the world."

"There is an incentive for governments to lean on their central bank to get a little more inflation, because that reduces very significantly the burden of the debt that the government is carrying," he said in a phone interview.

Central bank bond buying programs add another layer of risk, though Poloz said the greater coordination of policy makers to get through what could have become another Great Depression was vital. "As we emerge, people will want clarity on the tools. Will they be put back on the shelf, and in what circumstances would they be brought back into play?" he said.


Governments would do better to underline that central banks have independence to keep inflation in check and to focus on boosting productivity to avoid tax increases, he said. "Governments all around the world right now should be, I think, reminding everybody that they support independent central banks," he said, and that "it's not just some hope or aspiration inflation stays under control, it's the real deal."

With economies likely on a slower path now than around World War II when government borrowing was also sky high, adding even half a point to growth rates would make "a huge difference to the sustainability of government debt," Poloz said.

Governments seeking to pay off pandemic debts may also look at raising taxes, as an "an easy way out," said Poloz. Ahead of the Sept. 20 election, the governing Liberals have proposed raising CAD2.5 billion a year from large banks and the NDP have also called for taxing the rich and large corporations.


"The difference between the two scenarios, the inflationary one and when it's not, is mostly political," said the former governor, who retired from the BOC last year after a seven-year term and before that was CEO of Export Development Canada.

"You can kind of reassure people by a government, not the central bank, but the government asserting of course they believe in an independent central bank, they believe in what dividends the low inflation environment has delivered in the last 30 years," he said. "It's delivered a lot."

Independent central banks should still be able to balance the risks of faster inflation against the need to foster a job recovery, Poloz said. The pandemic remains a key threat and while the Covid recession may have been short, the risk of workers losing long-term skills will only rise if the rebound is prolonged.

"Inflation risk, those are risks that I think we weigh them against the potential for scarring; it kind of tilts the risks towards a faster recovery if you can achieve it," he said. "We are doing everything that's possible to minimize what I call conventional scarring."

MNI Ottawa Bureau | +1 613-314-9647 |
MNI Ottawa Bureau | +1 613-314-9647 |

To read the full story

Why Subscribe to

MNI is the leading provider

of news and intelligence specifically for the Global Foreign Exchange and Fixed Income Markets, providing timely, relevant, and critical insight for market professionals and those who want to make informed investment decisions. We offer not simply news, but news analysis, linking breaking news to the effects on capital markets. Our exclusive information and intelligence moves markets.

Our credibility

for delivering mission-critical information has been built over three decades. The quality and experience of MNI's team of analysts and reporters across America, Asia and Europe truly sets us apart. Our Markets team includes former fixed-income specialists, currency traders, economists and strategists, who are able to combine expertise on macro economics, financial markets, and political risk to give a comprehensive and holistic insight on global markets.