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The Bank of Canada is still unwilling to shift its monetary policy into neutral. That said, it will be hard pressed to find a slower forward gear than the one it's in now.
In its interest rate announcement Wednesday morning, the central bank once again held its key policy rate at 1 per cent (that's 22 consecutive rate-setting decisions spanning 31 months, for those keeping count), and left the language surrounding the outlook for future rate direction unchanged from its previous statement in early March. Officially, Governor Mark Carney and company still see sticking with this historically low and stimulative rate "for a period of time," after which it expects to begin to raise rates modestly.
Although the bank did tweak the language around this a bit earlier in the year, the main message has remained the same: Don't expect us to cut rates, the next move will be up. But with each new announcement, the likely timing of this apparently inevitable rate hike moves more distant.
Wednesday's statement was accompanied by the central bank's latest quarter monetary policy report, in which it slashed its 2013 GDP growth forecast to 1.5 per cent from 2 per cent. It also pushed out its horizon for the economy to return to full capacity and for consumer price index inflation to reach its 2-per-cent target sweet spot – the two events that typically signal the need for rate hikes – to mid-2015, from the second half of 2014 previously. Unless the economy surprises to the upside (not the direction we've enjoyed over the past six months), that implies that we're unlikely to see higher policy rates for two more years.
And even that requires a leap of faith. The Bank of Canada's new outlook projects that GDP growth will accelerate to 2.8 per cent in 2014. That looks more than a little optimistic: Bloomberg's monthly survey of private-sector economists shows a median forecast of 2.4 per cent, and only three of the 33 economists surveyed had a forecast equal to or higher than the Bank of Canada's.
There's a sense that the central bank is clinging to its rate-hike policy bias, even if it is a long time off and even if the economic facts make it increasingly hard to justify, because of its underlying commitment to stamp out Canada's household debt problem. While the debt situation has clearly improved in recent months – the housing sector has slowed and household credit growth has stabilized – the last thing the bank wants to do start tinkering with the long-term rate outlook, which could potentially restrain long-term lending rates and give consumers a new incentive to resume their borrowing spree.
But to do that, the message is becoming increasingly watered down: Kicking the rate-hike timing years down the road and adopting longer-term economic projections that the bulk of the economic community finds, to put it kindly, a stretch. The time is coming, soon, that either the economy turns a happy corner, or the Bank of Canada has to change its message.
David Parkinson is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights , and follow David on Twitter at @ParkinsonGlobe .
David Parkinson