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Metaphor-Loving Poloz Cites Dictionary in Explaining His Caution

  • Bank of Canada governor says he’s not speaking in code
  • Policy makers are ‘confident’ economy will need higher rates

Stephen Poloz

Photographer: Chris Roussakis/Bloomberg

Bank of Canada Governor Stephen Poloz says investors are wasting their time looking for deeper meaning in the central bank’s recent messaging.

Poloz has been promising to be “cautious” on future interest rate increases, after two hikes earlier this year. The wording has fueled a 5 percent drop in the Canadian dollar since early September. Poloz, who often uses metaphors to explain monetary policy, was asked at a press conference in Toronto whether his use of the word is really code for staying on hold.

“My interpretation of the word cautious is like it is in the English language, which is you are careful and you watch for signs you are making a mistake,” the governor said after outlining the central bank’s stance in a speech, his last of 2017. “It is not a code.”

Poloz, who raised borrowing costs for the first time in seven years in July and again in September, is trying to figure out how to bring extraordinary monetary stimulus and historically low interest rates to more normal levels as the economy runs up against capacity without triggering another downturn.

In the speech, he said he was “encouraged” by this year’s strong performance, and added “we are growing increasingly confident that the economy will need less monetary stimulus over time.”

Winter Storm

At the same time, Poloz said “we will continue to be cautious in our upcoming policy decisions.”

Investors are taking “cautious” to mean maybe three more rate increases in 2018, starting with a move at the Bank of Canada’s April decision.

When asked for specifics, Poloz declined to comment on the path of interest rates, or the timing of the next move. But he did offer up another metaphor.

Think of yourself trying to get home from work during a winter storm, he said. “You may drive more cautiously” but cautious doesn’t translate “into sitting in your car in the parking garage until the next day.”

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