BoC Poloz sent mixed messages on July hike

Jun 28 18, 03:40 GMT

BoC Governor Stephen Poloz’s speech yesterday caught much attention given that the central bank is due to meet again on July 11, just two weeks away. Expectations on a July hike was built up after the statement in May. But such expectations were put in doubt after a string of weaker than expected data. Escalation on trade tension with US also cloud the economic outlook. Overall, Poloz gave little hint on the chance of a July move with mixed messages with the post speech press conference.

On the hawkish side, Poloz said the shift in the language in May’s statement showed “increased confidence that the economy was performing as we expected, and that higher interest rates will indeed be warranted.” He also down played recent disappointing data. He said, “having the occasional data point that didn’t fit market expectations is not the sort of thing that throws that entire narrative off course. We are data dependent, not headline dependent.”

However, Poloz also emphasized that policy makers “cannot mechanically follow the rate path provided by our models because there is simply too much uncertainty in the world.” He pointed out that ” the degree to which uncertainty about trade policy is holding back business investment” is one of the certainties. And, the impact of new lending guidelines on housing markets is another one.

Poloz added that “as we approach our next interest rate decision, we are working to incorporate in our projections the effects of the recently announced US steel and aluminum tariffs, along with retaliatory measures, both in Canada and globally.” Also, BoC will analyze how the new lending guidelines are affecting the housing markets. These issues will ” figure prominently in our upcoming deliberations.” This is seen as the dovish side of the messages.

The upcoming data, April GDP and Business Outlook Survey will be highly critical on July BoC rate decision. In our view, should they disappoint, a July hike would be ruled out. Otherwise, it could be a 50/50 for BoC policy makers.

Here is the speech Let Me Be Clear: From Transparency to Trust and Understanding

Video of the speech: