Don't Bank on it

Sorry if I seem to keep coming back to this topic, but....

At its monthly policy-setting meeting this week, the Bank of Canada opted to maintain its key interest rate at 0.75 percent.  The Bank lowered its GDP growth forecast for the full year to 1.9 percent, but now seems to expect the economy to bounce back reasonably smartly from the setback caused by the collapse in world oil prices.  As the Bank expresses it, the impact of the oil price plunge is turning out to be more front-loaded than it previously assumed.

It would be fair to say that a good number of the usual experts on Bay Street do not share the Bank's optimism, and it's not hard to see why.  This is the same Bank that blindsided everyone by cutting rates in January, sounding almost panic-stricken.  Then it blithely suggested that it had the luxury of time to assess whether the January move would suffice to get the economy back on an even keel.  Then Governor Poloz warned that economic data for the first quarter of the year would be "atrocious", just days before StatsCan reported that GDP in January recorded an almost insignificant decline. And now the Bank is again on the sunny side of the street, stating in effect that the impact of the oil price decline is largely behind us.

The stream-of-consciousness approach to monetary policy that the Bank has adopted under Gov. Poloz is without recent precedent*.  Most central bankers strive for consistency in the message they provide to markets and to the general populace.  It's hard to know what Poloz imagines he is up to, but no doubt the volatility he is creating just about every week will continue to be welcome news for currency and money market traders.


* Unless perhaps Poloz is modelling himself on the time that Che Guevara was in charge of the central bank in Cuba right after the revolution!