Bank of Canada Rebuts BMO Charge of ‘Epic Fail’ on CommunicationsBy
Chief spokesman Harrison says July decision gave context
Bank of Montreal’s Porter said BOC silence was a failure
Canada’s central bank took the unusual step of directly rebutting criticism from a top economist that its communications were poor ahead of last week’s interest-rate increase.
The Bank of Canada didn’t give a speech or make other public comments about the strength of an economic recovery in the days before its Sept. 6 increase, a decision that Bank of Montreal Chief Economist Doug Porter called “an epic fail” in a report on Friday. The quarter-point increase to 1 percent was anticipated by six of 29 economists surveyed by Bloomberg.
Jeremy Harrison, the central bank’s chief spokesman, said in emailed comments that policy makers indicated at the last decision in July that monetary policy would be forward-looking and depend on economic data. Trading in overnight index swaps had also priced in 50-50 odds of a move this month after a strong report on second-quarter gross domestic product, which was published during a traditional blackout period in the days just before a rate meeting, Harrison said. Harrison had initially provided these comments to the Globe and Mail newspaper.
Porter didn’t immediately respond to a request for comment on what the central bank said about his note from Friday. The lead article in Porter’s flagship weekly publication said “we didn’t near a peep from the Bank for eight weeks,” contrasting Canada to the U.S. Federal Reserve where there can be several officials making comments a day.
“This vacuum created a great deal of uncertainty in markets ahead of the rate
decision, and a fairly violent market reaction in its wake,” Porter wrote. He wrote there is a good case for raising interest rates and expects them to rise by another percentage point in 2018.
Harrison said the decision to avoid fresh remarks just before the September decision wasn’t unusual, and that had been the case for three of the last four years. Several of Poloz’s comments from a press conference in July gave context to that decision and future ones as well, Harrison said, including:
- The economy was absorbing excess capacity more rapidly than projected
- As output growth continues to exceed potential, additional capacity could be created
- The appropriate setting for interest rates when economic growth is rapid, but inflation is low is an important issue. The Bank examined this issue from two perspectives: special factors temporarily pushing inflation lower, and lags between monetary-policy actions and their ultimate effects on inflation
- That future adjustments to the target for the overnight rate must be sensitive to continued uncertainty and financial-system vulnerabilities
The next Bank of Canada speeches are by Deputy Governor Timothy Lane on Sept. 18 and by Governor Poloz on Sept. 27.
Economists have already predicted another rate increase at the next meeting in October, while swaps trading shows most investors betting on one for December.