An open letter to Stephen Poloz on interest rates

By Thorsten Koeppl, Queen’s University

In an open letter to Stephen Poloz, Thor Koeppl compares Canada’s interest rate policy to a kiwi–a cute flightless bird. 

This week, the Bank of Canada left interest rates unchanged.  Business as usual one might think.  But far from it.  In your remarks to the Standing Senate Committee on Banking, Trade and Commerce, you all but made the argument for a possible future cut in interest rates.  Your reasoning, however, seems to reflect a brave new world in central banking where interest rates have to do all the heavy lifting and may even never rise again; in other words, a world in which doves become kiwis, a cute flightless bird.

The main reasoning for a cut in interest rates would be the dire state of Canadian exports – especially from the manufacturing and resource sector.  Growth has remained anemic due to what the Bank admits is a competitiveness challenge.  Uncertainty regarding future growth in the US and emerging economies have caused businesses to not make up for lost export capacity and to engage in productivity enhancing investment.

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