Canadian growth has been rather soft so far in 2012 and not much points to a quick rebound. Against this backdrop, a Desjardins Group report questions the relevance of the BoC’s frequent hints at a rate hike.
Read: BoC leaves it at 1%
It asks, “Can the BoC continue to emit a signal perceived as hawkish for over a year without acting on it?” and goes on to say “Our scenario is based on a first increase only at the beginning of 2014.”
It says given that household debt remains the main risk to the Canadian economy, the BoC has several incentives to retain this specific element of the message as “a way to encourage households to use caution.”
The strategy appears effective, borne out by the marked slowdown in consumer credit growth since the beginning of the year, it adds.
The report further notes that the BoC’s guidance is conditional on excess capacity being absorbed and inflation returning close to target.
“Even if these conditions were a bit slow to materialize, it would not necessarily invalidate the message conveyed by the statement,” the report concludes.