Mother Nature to Sick Patients Invoked in Poloz’s Debut

Bank of Canada Governor Stephen Poloz laid out some new words for talking about the future of interest rates, lacing his comments with analogies about lost sailors, Mother Nature and sick patients.

The new central bank chief also reworked key sections of a quarterly policy report by dropping a line that talked about the interest-rate path built into the bank’s base case, and revamping the discussion of the risks to the Canadian economy.

Poloz came to the central bank last month from the federal export-financing agency to take over from Mark Carney, a former Goldman Sachs Group Inc. banker. The changes in Poloz’s first announcement show he’s putting a new stamp on the institution, said Michael Gregory, senior economist at BMO Capital Markets.

Poloz is “maybe a little bit more folksy in bringing it back to metaphors that people can understand,” Gregory said by telephone from Toronto.

The central bank’s usual tools for gauging the economic recovery need more judgment than usual because the last global recession was more damaging, Poloz said at a press conference yesterday.

“The parable I gave to the staff the other day was that at one point, sailors were sailing the northern hemisphere using the stars for guidance, and one night they get blown into the southern hemisphere and the stars were all different, and so their models didn’t work,” he said. “They all managed to adapt and work it all out.”

Nature’s Way

The new governor has also stressed the need for Canada’s economy to rotate to growth led by exports and business investment, away from debt-fueled consumer spending. Companies are ready to spend more as U.S. and global demand build, Poloz said. “To me that’s kind of a sequence, which is Mother Nature at work.”

At a June 6 hearing before lawmakers, Poloz, 57, likened the way he’s built his own skill set over time to weekend visits to Home Depot. He also asked parliamentarians to imagine inter-planetary trade, and how earthlings could take advantage of flows between Jupiter and Saturn.

While Poloz and Carney’s speaking styles differ, they agree on the outline of where the economy is heading. Yesterday’s decision retained predictions that Canada will reach full output and inflation will hit the bank’s 2 percent target in mid-2015, suggesting interest-rate increases are a long way off.

“The world isn’t going to turn normal after the G-20 meeting this weekend,” said Poloz, referring to July 19-20 talks in Moscow among policy makers of the Group of 20 economies. “We hope that it continues to heal and that normalcy returns, much like a patient in hospital -- that’s not a bad metaphor.”

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