GDP rises, but guidance lacks clarity
The Bank of Canada’s latest policy announcement has drawn scrutiny over the clarity of its messaging, with Scotiabank economist Derek Holt describing the central bank’s forward guidance as “confusing.”
On June 4, the BoC left its policy rate unchanged at 2.75%, a move widely anticipated. However, while the central bank reiterated that it is not offering forward guidance, several statements during the policy release and subsequent press conference implied the July 30 rate decision may be conditional on upcoming inflation data.
Governor Tiff Macklem told reporters the Governing Council “thought that there could be a need for a further reduction in the policy rate if the economy weakens and if price pressures are contained.”
Though Macklem said this was not guidance, his comment, along with his response to a direct question about inflation data—“yes we will be looking at those carefully”—has led to mixed interpretations.
Scotiabank’s Holt pointed out the contradiction, noting that the BoC is simultaneously avoiding forecasts while signaling a potential rate cut.
“You’re either not providing any forward guidance or you are,” Holt wrote in a commentary following the announcement. He argued that the BoC’s messaging could leave market participants uncertain about the central bank’s policy direction.
The market response was driven more by US data than the BoC’s announcement. Canadian two-year yields moved in parallel with US yields following soft private payroll and ISM services reports. The Canadian dollar followed broader US dollar movements.
The BoC’s statement outlined persistent risks tied to US trade policy, including the possible impact of tariffs on Canadian exports, business investment, and inflation expectations. First-quarter GDP rose 2.2%, slightly exceeding the bank’s projections, but domestic demand was flat and unemployment rose to 6.9%.
April CPI inflation fell to 1.7%, largely due to the removal of the federal carbon tax. Inflation excluding taxes rose to 2.3%, with the BoC noting that its preferred core measures also increased. Business surveys reported that firms expect to pass on higher costs stemming from tariffs.
The BoC said it would continue to assess both downward pressure on inflation from slowing growth and upward pressure from cost increases. Despite repeated references to uncertainty, the central bank did not provide a timeline for when it will resume formal forecasts.
Deputy Governor Sharon Kozicki is expected to deliver remarks in the coming days, which may further address the BoC’s communications strategy ahead of the July rate decision.
