Bank of Canada governor Stephen Poloz is getting Canada a lot of attention. Unfortunately it's for all the wrong reasons.
Within minutes of Poloz finishing his speech yesterday, the financial website Zerohedge had posted a story headlined "Canada Just Warned That Negative Interest Rates Are Coming."
The more reputable Financial Times put out a flash: "Bank of Canada prepared to go beyond ZIRP."
Just like the FT to keep you guessing, even in a flash.
Of course, among the 62 global headlines I found about an hour after the speech, the message 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. Until very recently, in the world of interest rates it was considered the lowest of low.
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 concept of having to pay someone to hold your money gives most of us a funny feeling.
It's not at all clear 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 of a way to invest money 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 for Poloz it was an obvious mistake.
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.
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 Insider headline 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 business pages around the world.
"Now they are really being forced into a corner," readers of global news sites are probably saying to themselves.
Of course, according to Poloz, they would be wrong.
Yesterday's speech was clearly meant to be upbeat. Of course the commodities crash is hurting the Canadian economy. We've been through it before, said Poloz. 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 falling loonie those non-commodity exports have already begun to surge. But in the wider economic statistics the growth will be camouflaged by the plunge in resources spending at least until later in 2016.
Meanwhile, said Poloz, falling energy prices are good for the global economy. And a stronger global economy is exactly what Canada needs to help its exports grow.
As Poloz insisted, twice in English and once in French, the emergency measures he outlined yesterday were not to get the country through a growing domestic downturn caused by falling oil and a plunging loonie.
The bank governor was merely reassuring Canadians that, in the event of a "major crisis" — something as bad as the global emergency of 2008 — the Bank of Canada still had arrows in its quiver.
The better financial journalists will tell that whole tale. I've already seen some articles that do not. Like many others who see the headlines, they just couldn't get past the negative message.