Poloz answers critics questioning BoC’s credibility

by Justin da Rosa30 Mar 2015
The Governor of the Bank of Canada Stephen Poloz has gone into damage control mode, defending the bold actions carried out by the BoC in January when it shocked the market with a rate cut.
 
During a speech in the Canada-UK Chamber of Commerce in London last week, Polos was asked whether the credibility of the central bank should be called into question following the surprise move.
 
“It probably won’t come as a surprise to you that I would say no,” he told the audience, according to the Financial Post. “Central banks are doing their jobs in a very challenging setting.”
 
Poloz did, however, admit that the Bank of Canada knew the rate cut would come as a surprise to real estate professionals and investors alike.
 
“We knew that financial markets would be surprised by the move in January, and we generally prefer to avoid surprises,” Poloz said. “But we will do what is necessary to fulfill our inflation-targeting mandate.”
 
In late January, the BoC announced it was lowering its target for the overnight rate by one-quarter of one percentage point to 0.75 per cent. It said the move was in response to plummeting oil prices.
 
To say the move was a surprise is an understatement. It had many industry players questioning the credibility of the bank.
 
“Part of the significance of the announcement by the Bank of Canada is not the rate announcement but the fact that they surprised the markets in doing it, which would lead us to believe that there could be further shocks to the system,” Calum Ross of Verico Calum Ross Mortgage told REP sister site, MortgageBrokerNews.ca at the time. “I don’t think further rate cuts are out of the question when they surprise us with this.
 
“It’s uncharacteristic for a central bank to surprise the market – the very basis of stability of a financial system is about maintaining the trust and not having surprises happen.”
 
For his part, though, Poloz believes the bank’s credibility should be judged based on how it meets its goals.
 
“Ultimately, our credibility will hinge on how well we meet our mandate,” Poloz said.
 

COMMENTS

Poll

Is a Toronto foreign sales tax a good idea?