When it comes to telegraphing monetary policy, the Bank of Canada governor has sent the clearest signal yet that higher borrowing costs are off the table, for now. After weeks of market speculation, Mark Carney attempted Wednesday to draw a line through that uncertainty, saying “the case for adjustment in interest rates has become less imminent.” Wednesday’s report, indeed, paints a slightly brighter near-term picture of Canada, even as global conditions continue to threaten growth generally.
“Following the recent period of below-potential growth, the economy is expected to pick up and return to full capacity by the end of 2013,” the report said. That was pushed back from mid-2013 in the bank’s July report. The bank forecast growth of 2.2% this year, followed by 2.3% in 2013 and 2.4% in 2014. Those figures have been adjusted slightly from the July report, which called for 2.1% expansion in 2012, 2.3% in 2013 and 2.5% the year after. The report covered much of the same ground as Tuesday’s interest statement, while expanding on perceived threats to the global economy and concerns over mounting household debt in Canada. On Tuesday, the bank announced its key interest rate would remain on hold at 1%, where it has been for more than two years. But it was the wording of the rate statement, reinforcing the view of policymakers that borrowing costs were still set to rise “over time” — though implying a longer threshold than previously indicated — that caused some confusion among economists. Many had expected the bank to acknowledge that rate hikes were a long way off — well into 2013 or beyond — and that the housing market was starting to cool off under tougher new mortgage rules and that buyers did not need the threat of higher rates to get the message that household debt was at dangerous levels. There were also hopes that policymakers were moving toward more clarity in their monetary statements, following a speech by Mr. Carney on Oct. 15, in which he said “if we were to lean against emerging imbalances in household debt, we would clearly declare we are doing so and indicate how long we expect it would take.” Scotia Capital economist Derek Holt said Mr. Carney’s comments on Wednesday provided “by far the clearest communication we’ve had from the BoC over the last tumultuous nine days.” “That’s as clear a signal as any that the BoC is more dovish with its latest [rate] statement and MPR,” Mr. Holt said in a note to investors. Craig Alexander, chief economist at TD Economics, said the bank is “trying to speak out of both sides of its mouth at the same time.” “It’s trying to warn Canadians that rates are going to go higher, they’re trying to caution people not to take on too much debt,” he said. “On the other hand, they don’t want financial markets to interpret this that interest rates are going to go up at the next [policy] meeting.” The Monetary Policy Report noted that moderation in housing investment is likely the result of tighter mortgage rules introduced in July by the Finance Department. “We think those measures are having an impact and . . . we along with other federal authorities are watching the situation closely, monitoring the situation closely,” Mr. Carney told reporters. “What we’ve tried to be clear about . . . is that monetary policy — if it has a role to address in these issues — is the last line of defense.”
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AuthorRasam Hafezi: Archives
March 2015
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