If the idea was to stump the markets on what's ahead for the Bank of Canada, then governor Mark Carney succeeded Wednesday with a rate statement that gave both hawks and doves something to cluck over.
The central bank raised its benchmark rate by another 25 basis points to one per cent. Some felt it might leave rates unchanged, given the shoddy U.S. economic data of late and evidence of a slowdown in Canada.
The country's major commercial banks quickly followed suit, also raising their prime-lending rates by a quarter-point to three per cent.
What happens next is anybody's guess, as the accompanying statement provided little direct guidance. It was, according to economists at Laurentian Bank Securities, "deliberately ambiguous," as it highlighted slower growth and exceptionally easy credit conditions in almost the same breath.
Economists' interpretations of the central bank's statement were all over the map, with some suggesting it signalled a long pause ahead. Others, however, warned of another rate hike as soon as October.
The majority of analysts surveyed by Reuters think rates will remain on hold for the rest of this year.
"Mr. Carney wants to maintain maximum flexibility, so he's not promising anything," said Mark Chandler, head of fixed-income and currency strategy at RBC Capital Markets in Toronto.
Avery Shenfeld, chief economist at CIBC World Markets, said the central bank's statement reflects uncertainty among the bank's key policy-makers.
"It is evidence that the bank doesn't know what it is going to do, so it drafted a statement that lets them go either way."
The Bank of Canada's statement said Canada's economic recovery would be "slightly more gradual" than envisioned in its last economic outlook, due to a "muted" U.S. economy.
But it said domestic demand was expected to be "solid" and business investment to advance "strongly," both powered by "accommodative" credit conditions.
"What he is signalling is that there's a downgrade of growth coming up," Chandler said. "But he's also saying, 'Don't get carried away, because the central bank's forecast really hasn't changed that much, and the forecast entails higher rates.'"
The central bank made a specific reference to bond yields which have dropped steeply since the onset of rate hikes, in essence offsetting attempts to tighten the money supply. The central bank said as much in the statement, noting financial conditions have "tightened modestly but remain exceptionally stimulative" in Canada.
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