Open mouth, insert foot

Bank of Canada Governor Stephen Poloz just can't help himself, it seems. Delivering what was meant to be an upbeat outlook for the economy yesterday, he blurted out that the Bank is open to the idea of setting its interest rate target below zero. Now, to be fair to Poloz, what he was trying to say was that negative interest rates are an option that's available to the Bank in the event of another financial crisis. As he should have known, however, news services and headline writers rarely hang around to read the small print: his comments quickly sent the exchange rate to fresh 11-year lows, as this article spells out.

If I'd devoted this blog entirely to chronicling Poloz's wacky statements over the past couple of years, I wouldn't have been short of material. Back in January, the Bank surprised the markets with a rate cut, and the Guv opined that the outlook for the economy in the first quarter of the year was "atrocious". It turned out that GDP fell in the quarter by an amount that's well within the margin of error.  A couple of months ago he appeared to say that there was no role for monetary policy to play in keeping house prices under control, even though the IMF, OECD and others were all warning that overinflated housing markets in major Canadian cities were the main risk to the economy and financial system.  And so on, and so on.

It's possible that Poloz is perfectly happy when his musings send the exchange rate lower, even if that isn't his intention at the time.  His career background is not in central banking but in export finance, so presumably he believes that anything that boosts exports must be a fine thing. The problem is, there's almost no evidence that it's actually working. The CAD's exchange rate versus the US dollar has fallen from above parity to less than 74 cents in the past four years, and yet Canada's non-oil exports remain sluggish, even as the US economy continues to move ahead. There's no good reason to think that more of the same will work any better.

The squeals of anguish from savers earning returns below the rate of inflation are growing louder, and plans for winter vacations are being curtailed or cancelled entirely. It's very much out of keeping with the upbeat message that new PM Justin Trudeau is trying to spread.  There's no way the new government can remove the Bank governor without setting off a huge crisis, so unless Finance Minister Bill Morneau has a quiet word with Poloz, asking him to weigh his words more cautiously in future, we'll just have to sit back and wait for the next faux pas. We probably won't have long to wait.