Poloz says inflation will be focus of central bank policy

Canada's new central banker StephenPoloz says he intends to make inflation control the central thrust of the Bank ofCanada's monetary policy.

In an interview published Friday in theGlobe and Mail's Report on Business magazine, Polozdispelled speculation that he might be tempted to try to influence the exchange rate and weaken the Canadian dollar. Some have speculated that because of Poloz's past position aschief executive of Export Development Canada (EDC), he might approach monetary policy from an exporter's perspective and direct his interventions toward keepingthe Canadian dollar low, something exporters generally favour.

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But Poloz, who replaced former Bank of Canada governor Mark Carney on June 3, said there is little the bank can do to influence the exchange rate.

"You can really only control one thing," he told the ROB's Kevin Carmichael when speaking about the scope of what monetary policy can do. "The thing we care about mostis inflation, so we're notgoing to ever deviate from that just because something about the dollar is bugging us."

So far, Poloz has stayed true to his word, keeping the bank's interestrate at around one per cent, where it has been for the past three years, and saying at the last rate announcement earlier this month that rateswill stay low as long as inflation and growth in Canada remain subdued.

The next rate announcement is expected Oct. 23.

Close relationship with business

Poloz is thought to have a moredirect knowledge of the concerns of the Canadian business community than most central bank economists and policymakers because of his work at the EDC, where he worked closely with company executives to help explore and finance export opportunities.

Former Liberal cabinet minister John Manley, who heads up the Canadian Council of Chief Executives, told the ROB that during his time at theEDC,Polozspent a lot of time talking to CEOs and attending their joint meetings and was generally very well liked.

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In the ROB interview, Poloz expressed confidence that Canadian businesses that have been holding back on investment during the recession will soon start expanding their export markets again and bring the country's manufacturing exports back up to historical norms.

Canada hasn't recorded a trade surplus since December 2011. The country's exports fell 0.6 per cent in July to$39.2 billion and exports to countries other than the U.S. fell even more 4.5 per cent.

Poloz intends to let team do the work

Some havecriticized Canada's private sectorfor holding on toexcess cash and not investing aggressively enough into their businesses.

But while these critics would like to see policymakers like Poloz put the pressure on business to start spending again, Poloz himself says he has faith business operators will come to that conclusion on their own when they see orders for their products pick up.

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"The reality of business is they have to sell stuff," he told the ROB.

His job, Poloz said, is to make sure the conditions are in place to give businesses the confidence to expand their operations and to make sureexecutives and investorsunderstand themotivations behind the bank's monetary policy so they canmake the right decisions.

"If uncertainty is holding you back, then I do see us having a role to play and telling a coherentstory," he said.

Polozsaid in the interview that he intends to rely strongly on his team of advisers to help him do his job and won't be adopting the celebrity style of central banking that became the norm south of the border during Alan Greenspan's terms as U.S. Federal Reserve chairman.

"My style is not to lead with what I think, but to sit back and let 'er go," he said in the interview.

His team of advisers includes his No. 2, senior deputy governor Tiff Macklem, who many had tipped as the leading candidate for the governorship but who was ultimately passed over. Poloz, who recruited Macklem to the central bank during his first 14-year term there at the start of his career, told the ROB that the tworemain close friends and that there is nobody he would rather have by his side.