Poloz spawns negative headlines on interest rates: Don Pittis

Bank of Canada governor Stephen Poloz is getting Canada a lot of attention. Unfortunately it'sfor all the wrong reasons.

Within minutes of Polozfinishing his speech yesterday, the financial websiteZerohedge had posted a story headlined"Canada Just Warned That Negative Interest Rates Are Coming."

The more reputable Financial Times put out a flash: "Bankof Canada preparedto go beyond ZIRP."

Just like the FT to keep you guessing, even in a flash.

Of course, amongthe 62 global headlines I found about an hour after the speech, themessage you may have missed in all the excitement was that Poloz in no way said that negative interest rates were on the way.

His message was intended not to terrorize the world about the Canadian economy, but to reassure.

• Negative interest rates an option in Canada, Stephen Poloz says
• How negative interest rates could be a positive influence

ZIRP, in case you have been holding your breath waiting to find out, stands for zero interest rate policy. Untilvery recently, in the world of interest rates it was considered the lowest of low.

Negative feelings

And although negative interest rates have been tried, notably by Switzerland and Sweden to keep foreigners from driving up the price of their currencies,the conceptof having to pay someone to hold your moneygives most of us a funny feeling.

It's not at allclear that cutting interest rates to such a low level will have any useful effect on the real economy. After all, if businesses can't think ofa way to investmoney at current low rates,rates just a fraction lower are unlikely to convince them to borrow.

Banks will still be nervous about lending.And as Poloz said, in practical terms, for ordinary people, interest rates are never going to go below zero.

But look. I've fallen into the same trap. Just the idea of negative interest rates is so fascinating and so peculiar I can hardly stop myself from thinking and writing about it.

That's why forPoloz it was an obvious mistake.

'Atrocious' economy

Getting the financial world thinking about Canada being in such a terrible state that it might need negative interest rates was obviously the opposite of what the governor of the Bank of Canada wanted to do. Like previous comments about an "atrocious"economy and warnings about an overvalued housing market, Poloz may already be wishing he had been less forthright.

• Stephen Poloz says up to 30% overvalued housing big risk to economy

If Poloz doesn't have a current newshound on staff, he should get one. Because in our newsroom, as soon as we read the first copy of his speech everyone focused on three words. My desk neighbour nearly spit out his coffee. And evidently we were not alone. As a Business Insiderheadline said "The Bank of Canada Just Said the Three Most Controversial Words in Central Banking: Negative Interest Rates:"

The problem is that everyone in the financial world knows that the Canadian economy is in trouble. The world price of oil is still plunging. The products of our mines haven't been so cheap in years. The Canadian dollar is plunging again. The story of Canada's overvalued housing market has played on businesspages around the world.

"Now they are really being forced into a corner," readers of global news sites are probably saying tothemselves.

Of course, according to Poloz, they would bewrong.

Yesterday's speechwas clearly meant to be upbeat. Of course the commodities crash is hurting the Canadian economy. We've been through it before, saidPoloz. While falling oil has an immediate effect on the economy, the rebound of the non-commodity economy is inevitably slower.

Exports surge, except resources

As the bank has shown, spurred by a fallinglooniethose non-commodity exports have already begun to surge. But in the wider economic statisticsthe growth willbecamouflaged by the plunge in resources spendingat leastuntil later in2016.

Meanwhile, saidPoloz, falling energyprices are good for the globaleconomy. And a stronger global economy is exactly what Canada needs to help its exports grow.

AsPolozinsisted, twice in English and once in French, theemergency measures he outlined yesterday were not to get the countrythrough a growing domestic downturncaused by falling oil and a plungingloonie.

The bank governor was merely reassuring Canadians that, in the event of a "major crisis"something as bad as the global emergency of 2008the Bank of Canada still had arrows in its quiver.

The betterfinancial journalists will tell that whole tale. I'vealready seen some articles that do not. Like many others who see the headlines, they just couldn't get past the negative message.