Stephen Poloz to step down: How Canada’s top banker went from folksy obscurity to steady hand
OTTAWA — Outgoing governor Stephen Poloz once joked that, after being chosen to succeed Mark Carney as head of the Bank of Canada in 2013, he was received much like the guy who replaced Wayne Gretzky. That is to say: nobody actually remembers the guy who replaced The Great One.
Poloz was plucked from relative obscurity as head of Export Development Canada and, despite being on the shortlist of successors, was considerably less well-known compared to the high-profile Carney, who had engineered Canada’s response to the deepest recession in decades and made Time magazine’s 100 “most influential” list.
“I run into people in the street and they ask me, ‘how’s Mark?’” Poloz said in an April 2019 interview with Maclean’s. “And I’m like, ‘great… and I’m doing okay too.’”
He became known for his honest communication style, delivered with a trademark folksiness and a penchant for metaphors (he once used a “spaghetti-sauce model” to describe monetary tapering after the recession of 2007-08, and compared exchange rate fluctuations to walking a dog on a leash).
He made a point of accounting for the pulse of the “real economy,” focusing on business investment and the sentiments of CEOs more than his predecessors. Most of all, he kept inflation largely within the bank’s target, even amid trade threats from U.S. President Donald Trump and a Canadian economy that, after years of tepid growth, suddenly caught fire in 2017.
It wasn’t always a smooth ride. He started his term amid some concerns that his connection to the EDC and exporters would make him partial to a lower Canadian dollar. Others were rankled by his communications style, which sometimes veered from the Bank of Canada’s official script. He gradually overcame those frustrations.
“I think he’s gained more respect over time in this role,” said Mark Chandler, head of Canadian rates strategy at RBC Capital Markets.
Poloz took over from Carney at a time when the country was climbing out of the deepest recession in decades. A prolonged period of low interest rates had pushed household debts to among the highest of any developed nation, leaving the governor tightly wedged between mediocre economic growth and fast-expanding consumer credit.
I think he’s gained more respect over time in this role
Mark Chandler, head of Canadian rates strategy at RBC Capital Markets
His first major test came when oil prices suddenly collapsed in mid-2014, sending the wider economy into a tailspin. Poloz shocked the market with a sudden rate cut in early 2015, followed by a second cut months later, reducing the overnight rate to 0.5 per cent. The move both solidified what proved to be a prescient move by Poloz, while also laying bare the limits of monetary policy in the current economy.
“He was a creature of his time,” Chandler said. “It’s something you can give him credit for — he acted quite quickly, and at a time when others maybe hadn’t recognized the impact of the oil shock.”
Poloz was born in Oshawa, Ont., and completed his economics degree at Queen’s University in Kingston. He received a master’s degree in economics in 1979 and a PhD in economics in 1982, both from the University of Western Ontario. He first joined the Bank of Canada in 1981, where he rose up through the ranks over a 14-year period.
Christopher Ragan, former special advisor to Bank of Canada governor David Dodge, said it was immediately evident to him that Poloz was on the fast track for the governor position when he first met him in the early 90s.
Poloz was heading the bank’s then-research arm at the time. The other potential successor Ragan had identified was Tiff Macklem, who would later become senior deputy governor at the bank.
“They just had the complete package of things that you want,” Ragan said. “They had the analytical power, they had the administrative savvy, they had the communication chops. It was clear as day to me.”
Macklem was seen by many analysts as a natural successor to Carney, a long-time Bank of Canada employee who seemed groomed for the job. The decision by then-finance minister Jim Flaherty to appoint Poloz was met with confusion by some.
In a 2013 interview with the Globe and Mail, former European Central Bank economist Thorsten Koeppl said there was “a lot of head scratching going on” after the appointment. Macklem stepped down from the bank shortly after the appointment, four years before the end of his term.
But Poloz gradually won the confidence of Bay Steet, in part through a communication style that, unlike his predecessor, would readily convey the unknowns and uncertainties in the bank’s economic models.
“It’s part of his ‘aw-shucks, we-don’t-know-everything-that-the-previous-guy-knew’ communication style,” Ragan said. “He probably trades on that a little bit, and that’s okay.”
“He would say, ‘there are things the bank doesn’t know, things that I as a governor don’t know, things that the economics profession doesn’t know.’ And I think that’s extremely healthy.”
Another of his trademarks was a stand against debt. Poloz was uncommonly outspoken about rising consumer debt levels across Canada, and often expressed his worries over a heated housing market.
“That’s something that’s reasonably different than what other governors have done in the past,” said Jean-François Perrault, chief economist at Scotiabank.
“Unfortunately, that also muddles a little bit the approach to monetary policy,” he added.
Some analysts have disagreed with Poloz’s decision to continue holding rates, especially in recent months when trade rifts between the U.S. and China kicked off a wave of cuts at central banks around the globe.
“Over the last few weeks one could make a very good case that there was a need for lower interest rates in Canada to guard against risks,” Perrault said.
Scotiabank had predicted the bank would cut rates in October or December.
The wisdom of Poloz’s move remains to be seen, particularly with Canada’s current interest rate of 1.75 per cent being the highest among advanced economies.
Meanwhile, consumer debts have continued to rise. Canada’s household debt in 2018 averaged 181 per cent of total income, well higher than the United States (109 per cent), Germany (95 per cent), and others, according to the Organisation for Economic Co-operation and Development.
That could be among his more unfortunate legacies at the bank, RBC’s Chandler said. Concerns about household debts had already begun to surface when Poloz took over from his predecessor, when the Canadian economy was taking its long, slow climb back to health.
“Seven and a half years later, debt levels are even higher,” Chandler said. “So if that legacy was a question mark for Carney, it’s even more so under Poloz.”