Stephen Gordon points out that there appear to be some dangerous assumptions out in the market about whether and when the Bank of Canada will change interest rates:
The Bank of Canada is scheduled to make its next interest rate announcement on May 31, and my understanding is that the consensus of opinion among private sector analysts is that interest rates will remain unchanged, because there was no explicit warning of an increase in its April 12 decision.
This consensus of opinion may turn out to be well-founded — but not for that reason. Recent reports confirm what Bank officials have said several times: the Bank of Canada believes that it under no obligation to provide guidance about short-term interest rates. Governor Mark Carney has already noted that one of the contributing factors of the financial crisis was the private sector’s overconfidence in its ability to predict central banks’ behaviour.
This doesn’t automatically mean the Bank will raise interest rates at their next meeting, but it does mean that it could happen (despite the “lack of warning” in April).
