If you were to look on the Bank of Canada’s calendar, you’d probably see that today is the day for the interest rate announcement, and when we’ll hear whether or not the prime rate is going to see any increase at all. But Canadians who are aware of this weekend’s upcoming date – June 1 – know that it’s a much bigger day than just announcement day. It’s the last time Mark Carney will make the announcement as the Bank’s governor.
The dilemma for Carney will be whether or not to leave the interest rates where they are and portray a neutral stance, or whether he’ll leave them be and hint towards rate hikes at some point, or whether he’ll increase them. The last of these options is among the least likely of events that’s going to happen, but that doesn’t mean that there couldn’t be something a little more interesting to also go along with today’s announcement.
Benjamin Reitzes, economist at BMO Capital Markets says that the announcement “will be essentially status quo for Carney’s finale, but there is a chance we could have some intrigue.”
He also says that with a new governor about to come in, Carney isn’t likely to make any waves right now.
“Does he really want to meaningfully alter policy language right before a new governor comes in?” he asks. “Carney removing the bias would, no doubt, be followed by talk – from those conspiracy-minded – of him setting Poloz for a rate cut – which is very unlikely. So removing it may not be much of a favour at all.”
The other question then, is will Carney use the announcement as a chance to further his talk about economic instability, and the risk posed to Canadians should they continue to borrow at the speed they have been over the past several years.
Avery Shenfeld, chief economist at CIBC World Markets, thinks that it’s time for this kind of talk to stop.
“The bank should drop that threat,” he says, “if only to further cheapen the Canadian dollar and help exporters, but Carney believes it’s still useful as a way of discouraging excessive borrowing.”
And, he says, we also won’t know whether or not Carney’s policy over those several years was effective or not until interest rates rise – which will be when Carney is already holding a position at England’s central bank.
Shenfeld says that the current governor’s legacy “will still rest on whether the debt taken on during this long period of low rates ends up being problematic when rates ultimately head higher. To his relief, we’re likely to find lending standards have been careful enough to ensure that there’s no subsequent credit blow up as long as Carney’s successor is prudent about the pace at which rates ultimately raise.”
But in addition to what Carney will do, many wonder what Poloz is going to do when he does take over the reigns in July. And mostly, whether or not he’ll continue on Carney’s path, or make a name for himself while in office.
John Curran, senior vice-president at CanadianForex asks,
“Is Poloz just going to take over from where Carney left off maybe or make it his in some way? Is he just going to take the mantle from Carney, which is not a bad mantle to pick up and go forward with? We need to see some kind of concrete action and statements.”