As Macklem takes the reigns at the BoC what will be his first move?

The new Bank of Canada governor will announce the interest rate decision Wednesday but few expect any major diversions from current policy

As Macklem takes the reigns at the BoC what will be his first move?
Steve Randall

The new Bank of Canada governor took over from Stephen Poloz officially on Tuesday June 2, beginning a seven-year tenure with an unenviable task.

But will Tiff Macklem be quick to put his stamp on monetary policy or will it be very much ‘business as usual’ at Wellington Street?

Today’s interest rate decision (June 3) is not expected to bring any surprises, at least for the rate itself. Few economists believe there will be any divergence from the 0.25% current rate for perhaps a year or more, and today’s decision will have been overseen by outgoing governor Stephen Poloz.

But what happens next is less certain and perhaps inevitably, there is concern about a change at the BoC at such a fragile time for the Canadian economy.

"I am not entirely comfortable he's the best manager in the world," Joe Martin, director of Canadian business history at the University of Toronto's Rotman School of Management, told CBC News.

Martin acknowledges Macklem’s experience in being at the BoC during the financial crisis of more than a decade ago.

Others are more confident in Macklem’s abilities, including Scotiabank’s chief economist Jean-Francois Perrault who worked with the new governor both at the BoC and in the finance department.

“He’s got great common sense, he’s whip smart, he can frame ideas very clearly and has rock-solid judgment,” Perrault told Bloomberg.

Making his mark
Royce Mendes, senior economist at CIBC Capital Markets, believes that Macklem will want to make his mark on monetary policy fairly soon and that could mean interest rate changes ahead.

“While markets aren’t currently pricing in any rate hikes over the next couple of years, should pricing change as the economy gradually reopens, that tool seems like an easy choice to deploy,” he wrote in a client note.

A more likely move ahead is a gradual shift in the Bank of Canada’s large-scale asset purchase program, perhaps towards targeting a specific level of Government of Canada bond yields, versus a dollar-value of bond purchases.

“There’s no reason to rush these policies at the moment, particularly given the transition in leadership and the fact that there isn’t a Monetary Policy Report or press conference to justify any changes,” continues Mendes. “But expect additional monetary stimulus to be needed in some form over the coming months given the scale of the crisis.”

This direction is also the one seen as more likely than rate cuts by Sean Coakley, market strategist at Cambridge Global Payments, who told WP that negative rates would be devasting for the banking sector, which is already facing increased defaults, bad loans, and loan losses.

“The Bank of Canada is hesitant to increase pressure on the banking sector given this environment. If they move to greater levels of monetary intervention it will be through asset purchases rather than a lower overnight rate,” said Coakley.