MNI POLICY: Poloz: Upbeat on Recovery; Policy Must be Patient

By Greg Quinn

     OTTAWA (MNI) - Bank of Canada Governor Stephen Poloz said a solid recovery

from Covid-19 remains within reach and fears of a depression are exaggerated,

while urging patience with the forceful policies that are tiding companies and

households through the pandemic. 

     The comparisons to a depression "that I'm hearing is a little overblown,"

Poloz said. "We can still hope for the best case scenario," he said Thursday at

roundtable with journalists less than two weeks before his term ends. 

     "I really don't think it will be" like the 1930s, he said, because the

health shutdown is different than the "downward spiral in confidence" seen in

steep recessions.

     The destruction of some firms as a result of the pandemic also comes with

opportunities for new companies to flourish, part of what makes economies

dynamic over time, Poloz said. While companies may cut back on travel for

example, everyone may benefit from more flexible work arrangements.

     Traditional guideposts for the BOC such as its measure of full capacity

will be fuzzier as the supply side of the economy shifts through Covid-19, Poloz

said. Policy makers must resist the temptation to mechanically raise interest

rates when the economy picks up again, he said. Instead, the approach should be

to feel out whether new firms and production methods allow for more growth

without inflation surging past the BOC's 2% target.

     --BE PATIENT

     "Be patient and allow that to happen," Poloz said of an expansion led by

new and productive firms. There is also more potential for demand to spring

back, Poloz said, citing reports of long lines at stores that are re-opening.

     Some firms will go bankrupt but the economy still has a good chance of

returning to its pre-Covid growth trend in a year or two, Poloz said, adding

he's "optimistic" about the longer-term potential.

     Central banks must also keep working on other tools as the era of low

interest rates continues, Poloz said. "We will learn a lot from this crisis on

that front," he said. If the recovery is prolonged policy must be "easier for

longer" Poloz said.

     Poloz reiterated his long-held view that markets should rely more on their

own analysis than forward guidance from policy makers. He credited his own staff

for catching shifts in the economy that were out of consensus, likely a

reference to his interest-rate cuts in early 2015 as an oil slump was about to

hammer Canada's economy.

     --LEGACY

     Poloz will leave the BOC with a key lending rate at a record low 0.25% that

he deems to be the effective lower limit and a balance sheet that has grown to a

record CAD417 billion. Tiff Macklem, a former top deputy and business school

dean, takes over on the day of the next policy announcement on June 3. 

     During his time at the helm, Poloz moved to demystify work around the

central bank's forecasts and was a fan of analogies for monetary policy such as

pasta sauce, Star Trek and walking a dog on a leash. The former chief economist

at the federal export finance bank hasn't said what he will do next.

     The future of physical cash remains intact, Poloz said, joking that while

he may be "old fashioned" there is still a need for people like students without

credit cards to be able to buy sandwiches on their train rides or when the power

goes out. While the pandemic may boost the use of contactless digital payments,

"cash as we know it is probably going to be around for a very long time."

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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