“To be absolutely clear, we have no problem with the Bank raising rates,” Doug Porter, Bank of Montreal chief economist, wrote in his latest research note. “On the contrary, we have been agitating for a more hawkish stance for nearly a year, and believe the case for rate hikes is strong. Unfortunately, we heard absolutely nothing about that case from the Bank over the past two months. And therein lies the issue.”
Indeed, the big bank wasn’t the only one blindsided when the Bank of Canada hiked its target for the overnight rate to 1% last week.
A Reuters poll of economic forecasters corroborated the surprise, with 27 of 33 experts guessing the bank would stay pat.
To say Porter was perturbed by what he believes to be a lack of communication would be an understatement.
“Ahead of every FOMC meeting, we are asked to grade the Fed’s communications policy since the prior meeting. On the Bank of Canada, many would be tempted to give them an F in this case. We think that harsh judgement is wrong—we would give them a zero,” he wrote. “As in, there was no communication since the last meeting. Zilch. Zip. Nada. Nothing. As per Cool Hand Luke, what we had here was a failure to communicate—an epic fail.”
However, one mortgage broker argues the Bank of Canada’s communication lapse may not have been intentional.
“It feels to me like the Central Bank itself was surprised at the strength of the economic growth,” James Laird, president of CanWise Financial, said. “And so they, themselves, probably moved from their planned position of waiting until October or later when they saw the strength.”
So Laird is giving the BoC a pass.
For now, at least.
“Anyone in the industry appreciates having as much foresight as possible so we can help clients strategize. We would have of course appreciated more of a heads up but I’d say this one was the least telegraphed of most in the last several years. So if this is a one off that’s ok; we just don’t want it to become a habit because it makes us look not so smart in the eyes of our clients.”
The Central Bank has been given a failing grade by one of the country’s largest lenders, following a surprise rate hike last week that few industry pundits saw coming.