Blogs & Comment

BoC Shocker!

Surprised that Bank of Canada Governor Mark Carney didn’t lower the overnight rate? Everyone expected he would. But in the great balancing act that is monetary policybetween worries over inflation (driven by soaring commodity prices) and concerns over economic growth (sucking wind in Canada lately)it seems that the scales of concern at the Bank are now weighted toward inflationary concern.
Whats this mean, over the long term? Well, like much of what the Bank of Canada does, maybe not very much. But in some respects it might well be an encouraging sign.
For one thing, it suggests that worry over the economys recent poor performance, particularly in Ontario, might be overblownor rather that the slowdown is not likely to last much longer. (It might also suggest that the liquidity crisis/credit crunch that has gripped the financial services industry might be bottoming out, at least in the BoCs eyes.)
The bank continues to predict a recovery in economic growth by later this year and accelerating next year, so the decision not to lower suggests confidence in that prediction.
The bank has hereby kept its powder dry if the broad economy starts to tank. Clearly, Carneys BoC chose prudence over alarm at a time when both responses might seem equally appropriate. And Carney clearly hasnt bowed to interests in hard-bitten Ontario to tailor economic policy to a single region (or sector).
The first job of the Bank is to control inflation, and it clearly is taking the job seriously.
Thats a good thing. Isnt it?