Central bank touts benefits of market sources

OTTAWA — Intelligence collected from industry sources helped the Bank of Canada navigate the oil-price collapse and a top bank official says invaluable nuggets of information like that will continue to be relied upon for future policy decisions.

In a Calgary speech, deputy governor Lynn Patterson said Wednesday that the central bank has made good use of the insight it’s amassed from contacts such as fellow policy-makers, market participants and company representatives.

That source-based information — combined with information taken from models, data and internal analysis — all feed into the bank’s judgment on potential policy actions, she said.

“I can’t emphasize enough how critical these real-time perspectives are to our overall understanding of economic developments, and this is especially true during periods of heightened uncertainty,” Patterson told CFA Society Calgary.

“We rely heavily on our excellent models and incoming data for our forecasts. Yet we know that the intelligence that we gather is a critically important complement to them.”

To support her point on the importance of intelligence-gathering efforts, Patterson gave an example from the uncertain period that followed the late-2014 oil-price collapse.

She said interviews with oil-industry contacts at the time helped the bank realize that market expectations on crude prices were too optimistic.

The exchanges made it clear for the bank that there were no guarantees oil prices would start to recover in the medium term and that the negative effects on capital spending were going to be larger than expected.

“This would have a major impact on the economy,” Patterson said.

“That knowledge fed into our judgment and, ultimately, our decision to lower interest rates in January and July of 2015. Two years later, it is our view that these cuts have helped to facilitate the economy’s adjustment to the oil-price shock and that the economic drag from lower prices is largely behind us.”

The bank has taken steps to build up its intelligence-collecting operation through an expanded network of contacts.

Patterson said this wider reach enables the bank to scoop up more information when significant events, like Brexit and the recent U.S. election, threaten to have an impact on Canadian markets.

She also noted that some in-person meetings between bank officials and contacts are held behind closed doors to ensure the confidentiality of individual companies.

However, she sought to address potential concerns about meetings involving bank officials in private settings, insisting the bank only communicates new information on policy and its economic outlook in public.

Recent reports by Bloomberg, citing internal bank documents, have said the bank is revising its guidelines for private speaking events due to concerns these engagements may give the impression that some groups may have privileged access to information.

“We share much of what we learn,” said Patterson, who oversees the bank’s activities in financial markets.

“While we’re committed to transparency, we’re mindful of the need to respect the confidentiality of what we hear from individual firms.”

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