Bank of Canada’s latest rate hikes are signs it made a ‘mistake’: analysts
The Bank of Canada has shifted to a less prescriptive messaging strategy than it used in January when it signaled a rate-hike pause that reignited the housing market, which added to inflation and the need to resume tightening five months later.
Last week after lifting rates to a 22-year high of 5.0 per cent, Governor Tiff Macklem struck a more hawkish tone than when he announced a pause in January, warning the bank could hike again if economic data shows it is needed.
That switch could leave the BoC less vulnerable to criticism when forecasts go awry, leaving investors and borrowers to arrive at their own conclusions in assessing the outlook for interest rates.
“Every time (the members of the governing council) try to provide that hand-holding forward guidance, it doesn’t work,” said Derek Holt, vice president of capital markets economics at Scotiabank.
Central bankers around the world have underestimated inflation and grappled with communication. Macklem came under a rare attack last year from opposition politicians for misjudging inflation and locking in to a rigid forward guidance.
“We are turning the corner on inflation,” Macklem told reporters in January when the BoC became the first major central bank to announce a pause. “If economic developments and — in particular — if inflation comes down in line with our forecast, that will confirm that we have likely done enough.”
The markets quickly priced in a half-percentage-point in cuts by the end of the year, and the slumping housing market recovered. The average sale price of a home increased 19 per cent between January and May, according to the Canadian Real Estate Association.
That jump in housing prices “is likely to persist and boost inflation by as much as 0.3
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