Bank of Canada puts credibility on the line with hawkish hold
BNN Bloomberg
Governor Tiff Macklem was going to risk losing some credibility at this week’s Bank of Canada decision, whatever he did.
Governor Tiff Macklem was going to risk losing some credibility at this week’s Bank of Canada decision, whatever he did.
His own analysts presented him with evidence the economy is on the cusp of overheating and made a clear-cut economic case to hike immediately. But Macklem had told Canadians and investors they’d get a heads up before increasing rates.
A move Wednesday could have been seen as a betrayal of that promise. Instead, he chose to leave the bank’s policy rate unchanged at 0.25 per cent for at least five more weeks.
That decision, which formally ended what Macklem called exceptional forward guidance, potentially risked some credibility on inflation in order to deliver an advance signal that borrowing costs are going to rise.
“The bank elected to preserve the ability to use forward guidance as a credible policy tool by choosing to drop it first, and to thus signal that hikes will follow,” Ian Pollick, who heads fixed income, currency and commodity research at the Canadian Imperial Bank of Commerce, said in a report to investors.
By doing so, however, the governor also revealed that he either saw no urgency on the inflation front or that he will be a cautious central banker as he hikes rates -- or both.
