New Bank of Canada boss set to face major pressure

Incoming Bank of Canada boss, Stephen Poloz, is set to go on a wild ride with economists, industry experts and many Canadian consumers hanging on his every word in a way he's likely never experienced.

In the latest piece of advice, Doug Porter, chief economist of BMO Capital Markets, suggested Poloz drop the central bank's tightening bias when he takes over as governor on June 3.

Given slow growth, low inflation, an overvalued Canadian currency, sagging commodity prices, as well as a cooling house market, Porter says there is a good case for the Bank of Canada to stand down on hinting it will raise rates. Other challenges include soaring consumer debt.

"For more than a year now, the Bank of Canada has had at least a mild tightening bias in place—in a variety of guises—even as seemingly every other major central bank in the world has been easing aggressively," says Porter in a report titled "The Perils of Poloz."

Dropping the rate-hike bias could take a bit of steam out the loonie, which Porter says is overvalued by five to 10 per cent. On the other hand, keeping the bias is a constant reminder to consumers that debt levels must be kept in check or else suffer when they climb. Poloz will need to weigh those factors.

It would seem a right time for Poloz to drop the tightening bias because "after all, the market has long since stopped listening, and Canadians appear to have long since heard the message," says Porter. Current central bank chief Mark Carney starts his new job at the Bank of England on July 1. He has held the bank's benchmark rate at 1 per cent for more than two years.

Not only does Poloz, who is current chief executive at Export Development Canada, have big shoes to fill on the monetary policy side of things, there's also the people side of the equation.

It remains to be seen what the dynamic will be like at 234 Wellington Street as Poloz was a pick from the outside. Let's not forget he is also taking over for Carney, widely referred to as a global banking rock star and dubbed young, good-looking, charming and wicked smart by Time Magazine.

In his departing speech this week, Carney said Canada is in better economic shape than when he began the job, and the country -- especially when stacked up against recessionary Europe -- has got the big things right, including responsible fiscal policy, sound monetary policy, a resilient financial system and a monetary union that works. In other words, policymakers here should not get lazy, but rather move forward and seize the day.

Poloz makes his first speech on June 19 followed by a July 17 interest-rate decision. The curtain rises soon and all eyes will surely be on these opening performances.