July 12, 2017 / 9:52 PM / 3 months ago

BoC's Poloz says watch the data, but markets will watch his lips

OTTAWA (Reuters) - Bank of Canada Governor Stephen Poloz signaled Wednesday’s interest rate hike with recent speeches and interviews to ensure nobody was surprised, but from now on he would really rather let the numbers do the talking.

Bank of Canada Governor Stephen Poloz takes part in a news conference in Ottawa, Ontario, Canada, July 12, 2017. REUTERS/Chris Wattie

In raising rates for the first time in seven years, and for the first time on his watch, Poloz said policymakers will now look to data to decide when they can hike again, and urged financial markets to do the same.

“For us the ideal setting is where everybody is looking at the same data, and everybody is coming to a similar understanding of what’s going on and wouldn’t be hanging on to the bank’s every word,” Poloz told a news conference.

But with anemic inflation data pointing away from an interest rate increase, analysts said they will need hints from the central bank to determine what the data means to policymakers. Especially as key data, including on inflation and wages, leading into Wednesday’s decision did not suggest a July hike was imminent until a flurry of central bank speeches and interviews in late June guided markets to expect one.

“It’s not how I interpret the data, it is how they interpret the data,” said senior rates strategist Andrew Kelvin at TD Securities, which had expected the bank to hold rates steady rather than hike because the Consumer Price Index (CPI) had shown subdued inflation.

“As much as we are all looking at the same data and there is this ideal that we can just form the same conclusion ... it’s very clear that markets find the bank’s comments to be a more compelling guide than any evolution in the data, particularly when you look at where CPI is.”

The bank raised interest rates by 25 basis points to 0.75 percent on Wednesday.

While the bank used its quarterly monetary policy report on Wednesday to explain how it expects inflation pressures to build, Poloz also said it has adopted a habit of using a speech between policy-setting meetings to describe how it sees the latest data, acknowledging it can’t rely on data alone to guide markets.

“I think they probably learned a little bit of a lesson here,” said Brett Ryan, senior U.S. economist at Deutsche Bank in New York. “It would serve them well ... to do a little bit better job on communicating to the market what their reactions are to some of the near-term data.”

Reporting by Andrea Hopkins and Leah Schnurr; Editing by James Dalgleish

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