It’s not Bank of Canada’s job to guide markets on rates

STEPHEN GORDON - The Globe and Mail

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.
Central banks do not seek to create surprises for their own sake, and they will do what they can to reduce uncertainty when doing so does not conflict with their policy goals. But providing direction for private sector short-term forecasts for interest rates is not a policy goal in itself.
Curious games can occur when central banks seek to avoid surprises -- monetary policy can become effectively outsourced to financial market analysts. For example, if the consensus opinion is for no rate change, then the central bank may feel obliged to fulfill that expectation rather than risk an interest rate ‘surprise’, even if the monetary authority’s analysis points to an interest rate hike.
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