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Flaherty stuns Bay Street, names Stephen Poloz Bank of Canada governor


by Kevin Carmichael and Bill Curry, The Globe and Mail


Finance Minister Jim Flaherty shocked Bay Street Thursday, shunning the obvious choice to follow Mark Carney as governor of the Bank of Canada, and instead naming Stephen Poloz.

For months, investors around the world have been almost universal in the assumption that the next governor of Canada’s central bank would be Tiff Macklem, the current No. 2 at the institution.

The selection of Mr. Poloz threatens to roil Canada’s bond and currency markets, at least in the short term, as traders digest the surprise. Unlike Mr. Macklem, Mr. Poloz is an unknown commodity outside Ottawa.

“Stephen Poloz has a long and distinguished career in the public and private sectors with 30 years experience in financial markets, forecasting and economic policy,” Mr. Flaherty said in a statement. “I am confident he has the skills and experience required to lead the Bank of Canada at a time of global economic uncertainty.”

His selection to the seven-year term will raise questions about whether Prime Minister Stephen Harper is seeking greater influence over monetary policy by installing a governor from outside the institution.

He also could be facing an institution with a broken morale, as the governor now has been selected from outside its ranks for the third consecutive time. There also is a chance that Mr. Macklem, a popular and highly respected policy maker, could leave the Bank of Canada.

Mr. Poloz first task will be establishing his credentials to lead a major central bank. That’s because on paper, Mr. Flaherty chose the weaker candidate.

"He has not been particularly vocal with respect to monetary policy philosophy and has not been in a position to comment extensively on domestic issues," Jimmy Jean, an economic strategist at Desjardins Capital Markets, said in a research note to clients.

"Hence, from a market perspective, this nomination brings a bit of uncertainty, in that Mr. Poloz may wish to bring different ideas to the BoC, even though the nature of those ideas are unknown, let alone whether they are more dovish or hawkish in nature."

Both Mr. Flaherty and the Bank of Canada praised Mr. Poloz and his credentials.

"Mr. Poloz has significant knowledge of financial markets and monetary policy issues and extensive management experience," said David Laidley, the chair of the central bank's special committee.

"We are confident Mr. Poloz will make an outstanding contribution to the work of the Bank and uphold its reputation as a leading central bank.”

Mr. Poloz, 57, is a respected economist with a PhD from the University of Western Ontario.

As head of Export Development Canada, a Crown corporation that finances and insures exports, Mr. Poloz oversaw an expansion of the institution’s power to do more domestic lending. Mr. Poloz also served as EDC’s chief economist and as president of the Ottawa Economics Association.

"Markets could take this appointment as a dovish nod in that the government may be placing the emphasis upon Poloz’s strong background in the export sector and hence his understanding of the competitive challenges facing Canadian exporters including an elevated currency," said Derek Holt and Dov Zigler of Bank of Nova Scotia.

"That said, Poloz has not delivered an official speech since about a year ago on April 26, 2012 and that was about trade relationships between Canada and Japan while offering no insight into his thinking on monetary policy," they said in a research note.

"He has generally avoided public commentary on matters of monetary policy, and by sticking to his knitting has pursued a successful career under the (Conservative) federal government. As such, his views as applied to the conduct of monetary policy are not well known. It is possible that markets will initially treat his appointment as mildly dovish for rates and bearish for [the Canadian dollar], but the strong caution is that Poloz’s initial speeches and [monetary policy report] will therefore be of heightened interest as his views on monetary policy are such an unknown quantity."

Mr. Poloz hasn’t been involved directly with monetary policy since he left the Bank of Canada almost two decades ago.

He lacks the front-line experience fighting the financial crisis that Mr. Macklem gained as a senior official at the Finance Department and the central bank. He also lacks Mr. Macklem’s long list of international contacts compiled through years of attending gatherings of officials from the Group of 20 and Financial Stability Board.

“This has been an extremely thorough process as we sought the best candidates from around the world," Mr. Flaherty said.

“We had some very impressive individuals come forward as candidates and I would like to take this opportunity to thank each and every one of them for their interest."

Source: The Globe and Mail

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