OTTAWA (Reuters) - The decision this week by Canada’s central bank to add more speeches from policymakers to its schedule after an interest rate decision will not do enough to provide better forward guidance on monetary policy, analysts said on Friday.
Bank of Canada Senior Deputy Governor Carolyn Wilkins said on Wednesday the central bank had decided to advance the timing of speeches providing economic updates to “align them more closely” with its interest rate decisions.
But those who hoped the speeches would come before rate decisions as a way for the bank to prepare markets for changes in policy or tone were disappointed that the speeches will come after the so-called fixed announcement dates for rate decisions.
“If they are speaking after the fact that’s not going to be helpful one bit. If they want to provide useful guidance they need to weigh in ahead of time,” said Derek Holt, head of capital markets economics at Scotiabank.
Bank of Canada spokeswoman Rebecca Ryall said while an exact timing for the extra speeches has yet to be worked out, they will occur “several days” after the rate decisions in March, May, September and December as a method to “explain” the central bank’s thinking.
The shift in speaking schedules follows repeated criticism of the bank’s communications this year after a dramatic shift in tone in early June and then silence before a September rate hike that many in the market did not see coming.
The bank has said future monetary policy action is data-dependent, and Bank of Canada Governor Stephen Poloz eschews the type of forward guidance favored by the U.S. Federal Reserve or Bank of England.
The Fed’s so-called “dot plot” shows what policymakers see as the “appropriate” level for the central bank’s benchmark interest rate in the future, while the Bank of England sometimes comments on the degree of policy tightening implied by yields in money markets.
Bank of England Governor Mark Carney was a pioneer in the use of forward guidance when he fulfilled the same role at the Bank of Canada, helping Canada’s economy to recover after the 2008 global financial crisis.
But Poloz abandoned forward guidance in 2014 in a bid to create less volatility, saying the policy of an explicit tightening or easing bias should be reserved for extraordinary times.
Still, the uncertain path has meant a wild ride at times for the Canadian dollar as traders reacted to surprises.
Hosen Marjaee, senior managing director, Canadian fixed income at Manulife Asset Management, said the bank needs to do more to help markets understand its outlook for interest rates.
“I think something similar to the dot plot ... would give a bit of direction, at the same time to indicate they are not bound by it but that is their current thinking and they are staying vigilant and watching data and that direction may change,” Marjaee said.
“Because right now we don’t know where their head is at.”
Other types of graphical presentation, such as a fan chart, could also be used by the central bank, market players say, and could help reduce volatility in markets due to the central bank’s current approach to guidance.
“It is so blurry that the minute they are going to start signaling that next move ... you are going to see that volatility creep back again.” said Jimmy Jean, senior economist at Desjardins Capital Markets.
Reporting by Andrea Hopkins and Fergal Smith; editing by Clive McKeef