By Peter Diekmeyer
OTTAWA (MaceNews) – Bank of Canada head Stephen Poloz Thursday denied the existence of a central bank backstop if a collapse in Bitcoin and FANG stocks spreads to other sectors.
The central bank governor made the comments following a now-annual presentation to Toronto’s business community, which focused on growing financial vulnerabilities. Poloz cited rising consumer debts stemming in part from “interest rates (that) have been extraordinarily low for an extraordinarily long time,” as a key risk.
The Bank of Canada has been perfecting tools to determine how financial system developments affect the real economy. Yet while the central bank has admitted to fostering asset inflation to boost economic output, it has no stated plan to reverse a potential decline.
“Is there a Poloz Put?” asked the Bank of Canada’s Governor rhetorically. “No.”
The comments came a day after the BoC elected to maintain its policy rate at 1.75% and almost a year after Poloz provided a stiff warning about cryto-currencies. That call proved to be prescient, as bitcoin prices tumbled more than 75% during the ensuing 12 months.
The Bank of Canada is particularly concerned about uncertainty in global trade policies, which it believes may be weighing on demand.
“Rising tariffs will slow economic growth and reduce productivity on both sides, and will raise inflation risks,” said Poloz, recalling the “stagflation” scenarios of the 1970s.
“Because effects on the economy would likely prove to be structural, rather than cyclical, I have to believe that containing inflation risks would become paramount in an outright trade war.”
Canada’s energy sector, which absorbs a significant share of the country’s business investment is also a concern due to falling global prices and Alberta producers’ lack of transportation infrastructure to get product to market.