Bank Of Canada Fires Shot Across Bow, Says "Withdrawal Of Stimulus Will Likely Be Required"

With the entire world engaged in global coordinated easing, slashing, burning, and overall lowering rates and printing money by the wheelbarrow, the Bank of Canada just fired a shot across the bow. Here is the kicker: "Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required." Surely they must be punished for this blasphemy in the holy church of Saint John Maynard and the apostles of collapsing fiat.

The Loonie is happy:

Goldman is not. From GS' Andrew Tilton.

Keeping and strengthening the tightening bias, a hawkish surprise


The Bank of Canada today kept the target for the overnight rate unchanged, as was widely expected. Instead, the main focus today was on the language of the statement following Governor Carney’s speech last week at which he omitted mention of the BoC’s tightening bias. In the event, the tightening bias was strengthened, while the growth forecast was kept essentially unchanged. Overall, relative to the speech by Governor Carney last week, this represents a big surprise and suggests that concern over imbalances in the household sector may have grown.


In contrast to Governor Carney’s speech last week, where the tightening bias was omitted, the language of the tightening bias has been strengthened in two ways. First, language that conditioned tightening on the pace of the recovery has been dropped. Second, tightening is now called “likely,” where as before it was termed “may become appropriate.” The tightening bias language now reads: “Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target.” The statement now explicitly also mentions the evolution of imbalances in the household sector, which suggests that concerns over household leverage have moved up the list of priorities for the Bank of Canada.


In this context, the Bank of Canada held its growth forecasts essentially unchanged. Growth for 2012 has been revised up to2.2% in 2012 (from 2.1%), was kept unchanged at 2.3% in 2013 and taken to 2.4% in 2014 (from 2.5%). Given Governor Carney’s emphasis on the deterioration in business sentiment and the investment outlook, this is also a hawkish surprise. The statement refers as it did previously to “very stimulative financial conditions” as sources of support for consumption and business investment. These seem to have trumped the concern over higher frequency indicators that were pointing to weakness. The output gap is now expected to close end-2013, slightly after the H2 2013 date given previously.


Overall, the statement stands in marked contrast to the Governor Carney speech last week and sounds more hawkish than we expected. However, we are sticking to our call of no rate hikes until Q4 2013

Full statement link here, and a side by side comparison with the last statement below.