The Bank of Canada left its key interest rate parked at 0.25 per cent on Tuesday morning, as just about everyone expected - but economists were quick to slice and dice the wording of the monetary policy statement for clues about the future direction of rates.
After all, the March statement was not a carbon copy of the January statement, and a lot has changed between then and now: Like, the Canadian economy grew by 5 per cent in the fourth quarter, blowing past the central bank's own forecast of 3.3 per cent growth.
In Tuesday's statement, the central bank left one crucial sentence unchanged: "Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target."
Despite that line, though, the bank described domestic spending as "vigorous", noted that core inflation "has been slightly firmer than projected" and removed a boilerplate line about the Bank of Canada retaining considerable flexibility for greater easing should economic conditions get worse.
So what does it mean for rates? Here are a couple of views.
Eric Lascelles, chief economics and rates strategist, TD Securities: "The Bank of Canada has walked a fine line with its latest decision, though overall it is undeniable that the risks to Canadian monetary policy are starting to tilt upwards. Our house view remains that the Bank of Canada will first hike in October, but it is hardly inconceivable that this could now come a touch sooner, in September or possibly even July."
Michael Gregory, senior economist, BMO Nesbitt Burns: "The output gap appears to be closing faster than the Bank expected, driven by vigorous (low-interest-rate-stoked) domestic demand. This, in turn, seems to be applying more upward pressure on inflation than the Bank expected. I suspect Carney and Co. are starting to feel the urge to tighten, not a strong urge now, but an urge nevertheless. We still judge that the Bank will hike rates 25 basis points on July 20th, with rising risks that this and/or subsequent moves could be in larger increments."
Paul-André Pinsonnault, senior fixed income economist, National Bank Financial: "By staying committed to a pledge made a year ago during the worst credit conditions since the 1930s, the Bank of Canada seems to be down-playing the very significant improvement in financial conditions and its impact on the real economy. By doing so, the BoC is setting itself up for more aggressive rate hikes should its 2010 economic projection prove to be yet again too soft."