The appointment of Stephen Poloz as Canada’s next central bank head taps his experience leading the country’s export-financing body as the world’s 11th largest economy relies on trade and business investment to lead growth.
Poloz takes over the Bank of Canada June 3, replacing Mark Carney after he leaves to lead the Bank of England. The choice, announced yesterday by Finance Minister Jim Flaherty, surprised economists who had picked Senior Deputy Governor Tiff Macklem as the most likely candidate. Poloz, 57, has been chief executive officer of Export Development Canada, and worked 14 years at the central bank in roles including head of research.
Policy makers have kept their benchmark interest rate at 1 percent since 2010 in the longest pause since the 1950s and say growth over the next years must shift to being led by exports and company spending from housing and consumers. The central bank earlier this month slashed its 2013 growth forecast to 1.5 percent from 2 percent, the lowest in the Group of 20 outside of Europe, according to International Monetary Fund estimates.
“The government is well aware we are in an increasingly international economy and the fate of the Canadian economy depends to a great degree on what is happening overseas,” Jamie Price, director of fixed income at Macquarie Private Wealth in Toronto, said in an interview. “Choosing someone that focused the last decade plus of their career on business overseas seems to be an extension of what they have already done.”
Canada’s currency weakened after the announcement on concern that Poloz may adopt an easier monetary policy than Carney or drop the bank’s language that interest rates may rise. The nation’s dollar fell 0.2 percent to C$1.0105 per U.S. dollar yesterday. The currency traded 0.2 percent higher today at C$1.0090 at 9:31 a.m. in Toronto.
“What we’re looking for is that the engine of growth on the demand side gradually shifts into the export side of the economy,” Poloz told reporters yesterday. “What we watch for is the resumption of creation of new companies, and that is just beginning.”
Poloz said his time at EDC has given him experience “with both banks and Canadian companies day-by-day.”
“It gives us a true anecdotal feel for what is going on in the Canadian economy, which I consider to be of exceptional value,” Poloz said.
Exports make up about a third of Canada’s economy, and three-quarters of those sales are to the U.S. The drops in American demand for goods such as lumber and automobiles have left Canada’s exports 8.1 percent lower today than they were at the peak before the last recession.
Bank of Canada policy makers said in an April 17 decision that “considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required.” Still, the Bank of Canada is alone in the Group of Seven signaling that an increase in rates is possible while central banks in the U.S., Europe and Japan purchase assets to spur growth.
Poloz “does not own this tightening bias,” said Ed Devlin, the head of Canadian-portfolio management team at Newport Beach, California-based Pacific Investment Management Co., the world’s largest manager of bond funds. “The markets are wondering if, when, the bank will remove the tightening bias and so I think that’s another reason the Canadian dollar might depreciate a little bit and people might think rates might go just a little bit lower.”
Canada yesterday posted its first trade surplus in a year in March, breaking the longest string of deficits in at least 25 years as exporters shipped more energy and mineral products abroad. The surplus of C$24 million ($24 million) followed a revised shortfall of C$1.25 billion in February.
“Canada cannot exhibit strong growth when the rest of the world is slowing down,” said Aubrey Basdeo, head of Canadian fixed-income at the Toronto unit of BlackRock Inc., the world’s biggest money manager. “The government wants some new thinking, not the same old same old.”
Poloz’s appointment, which CIBC World Markets economists Benjamin Tal and Emanuella Enenajor called a “huge surprise,” marks the third straight time the senior deputy failed to be promoted to the governor’s job, following David Dodge who moved from the finance department to take the helm in 2001, and Carney, a former Goldman Sachs Group Inc. banker, in 2008.
“I have the utmost respect for Steve as an economist, and as a public servant,” Macklem said in a statement e-mailed by the central bank. “I look forward to working with him as a colleague on the Bank’s Governing Council as we carry out the important mandate of the Bank of Canada.”
Investors may be wrong to expect Poloz will bend monetary policy to benefit exports, said Christopher Ragan, economics professor at McGill University and a former finance department adviser who did research with Poloz at the bank.
“Steve is first and foremost a macroeconomist who understands monetary policy and knows that the only instrument the bank has to control inflation is interest rates,” Ragan said in a telephone interview. “I see no dove in Stephen Poloz.”
Poloz told reporters that the bank’s flexible inflation targeting policy has served Canada well through the financial crisis. The bank’s six-member governing council works by consensus and unlike the U.S. Federal Reserve, it doesn’t publish meeting minutes or vote tallies.
A native of Oshawa, Ontario, east of Toronto, Poloz has a doctorate and master’s degree in economics from London, Ontario’s Western University as well as a bachelor’s degree in the same field from Queen’s University in Kingston, Ontario. He and his spouse, Valerie, have two children.
“He is a great communicator and that’s a very important role,” said Craig Wright, chief economist in Toronto at Royal Bank of Canada, the country’s biggest bank by assets. “He can connect to people and he can convey complex ideas.”
Poloz has said his career in central banking had a humble beginning. One of his first jobs was to read newspapers to then Senior Deputy Governor John Crow, who had strained his eyes, Poloz said in a 2005 interview.
Carney surprised financial markets Nov. 26 by saying he would leave his job and cut short his seven-year term by 20 months to take over the Bank of England.
The central bank’s board of outside directors selects governors with the approval of the federal cabinet. The job is for a seven-year renewable term and last year paid a range of C$431,800 to C$507,900. That’s higher than Prime Minister Stephen Harper’s 2012 salary of C$315,462, a figure that doesn’t include perks such as the official residence. By comparison, Richard Waugh, chief executive officer of Bank of Nova Scotia, Canada’s third-biggest lender, received C$11.1 million of compensation last year.