Blandly reassuring, is Bank of Canada governor really ready if something bad happens?
I hope Bank of Canada governor Stephen Poloz was putting on a brave face.
Despite a warning that risks had increased, mostly due to the property market, the avuncular Poloz was blandly reassuring when he met with the media yesterday to discuss the bank’s latest Financial System Review.
His senior deputy Carolyn Wilkins was even more hypnotically nerveless.
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Not that we wanted our two most senior central bankers to be wailing and renting their garments in despair. Of course it is nice to feel that Canada’s financial system is in cool hands.
But is the governor lulling us to sleep when we need to be very wide awake?
Why worry?
We must just hope that behind the scenes, in the Bank of Canada war room, the soothing Poloz and ice-cool Wilkins expose themselves to a few more terrifying scenarios. Because a survey of credible sources says the world, and the Canadian economy, remain fraught.
While it may be nice for a firefighter to reassure you that modern houses seldom burn down, the fire chief you want racing to your flaming home is one who fears the worst and knows what to do when it happens. Chief central bankers should think like firefighters.
Even while upping the housing risk, Poloz played it down.
“Overvaluation remains a concern,” he said in his prepared remarks. “But the probability that a sharp correction in house prices will occur remains low.”
Even if that should happen, said Poloz and Wilkins, the systemic risk — that is, the risk for the wider Canadian economy — is reduced by the fact that the bad effects of overvaluation will only hit some households in some regions. Vancouver and Toronto, are “showing some strengths,” said Wilkins, but outside those two centres prices are “easing quite nicely.”
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