24 Feb 2015
BoC Poloz signals pause next week - Scotia Bank
FXStreet (Bali) - Economits at Scotia Bank note that BoC Governor Poloz has set up the stage for an unexpected rates pause at next Wednesday’s meeting.
Key Quotes
Following an unexpected rate cut in January, Governor Poloz is setting up a heretofore unexpected pause at next Wednesday’s meeting and in line with what we wrote this morning. As one might expect, CAD is stronger and the front-end cheaper as a consequence to the shift in communications.
There are two remarks that we flag in support of this interpretation and they are both in the conclusions section: "So, the downside risk insurance from the interest rate cut buys us some time to see how the economy actually responds" and “…what we are trying to do is to manage the risks we face, not eliminate them”
In our view this says that the Bank of Canada is shifting to data dependency and will condition further possible easing upon how the data and market metrics like oil prices evolve over time
In my personal opinion, the emphasis upon taking out insurance against downside risks lies in conflict with the shift to data dependency given long and variable lags of monetary policy impacts on the broader economy which could have counselled front-loading insurance cuts rather than scattering them (if delivering any more at all) in which case precious little insurance has been taken out. Should economic conditions deteriorate over the course of the year, the BoC could be left reacting too late.
Key Quotes
Following an unexpected rate cut in January, Governor Poloz is setting up a heretofore unexpected pause at next Wednesday’s meeting and in line with what we wrote this morning. As one might expect, CAD is stronger and the front-end cheaper as a consequence to the shift in communications.
There are two remarks that we flag in support of this interpretation and they are both in the conclusions section: "So, the downside risk insurance from the interest rate cut buys us some time to see how the economy actually responds" and “…what we are trying to do is to manage the risks we face, not eliminate them”
In our view this says that the Bank of Canada is shifting to data dependency and will condition further possible easing upon how the data and market metrics like oil prices evolve over time
In my personal opinion, the emphasis upon taking out insurance against downside risks lies in conflict with the shift to data dependency given long and variable lags of monetary policy impacts on the broader economy which could have counselled front-loading insurance cuts rather than scattering them (if delivering any more at all) in which case precious little insurance has been taken out. Should economic conditions deteriorate over the course of the year, the BoC could be left reacting too late.