Markets observer twits BoC’s defensiveness

Says that the central bank should learn to avoid these kinds of communication errors in the future

Markets observer twits BoC’s defensiveness
The Bank of Canada’s public rebuttal of criticism from BMO chief economist Doug Porter was an uncharacteristic blunder that the usually circumspect central bank should diligently avoid in future communications, according to a markets observer.

In his latest piece, Bloomberg contributor and analyst Daniel Moss rebuked the BoC for its sharp reaction to Porter’s comments regarding the rate hike earlier this month. Porter recently took the bank to task for failing to sufficiently communicate its intention to raise its benchmark interest rate.

“[Porter] clearly struck a nerve with the Bank of Canada, and spokesman Jeremy Harrison came out swinging. Harrison said the bank indicated in July that policy would be forward-looking and data-dependent. And while most economists didn’t forecast a step up last week, Harrison said that financial markets saw it as a more or less 50-50 proposition.”

“All true. But why be so defensive? This response to an outsider’s critique makes the Bank of Canada look vulnerable and unsure of itself,” Moss wrote. “Worse, it risks creating the perception that the bank will respond to economist notes that it doesn’t like or that it feels are wide of the mark.”

“Investors could end up speculating that the central bank’s silence about some economist’s note is equal to an endorsement,” he added. “This kind of speculation is exactly what banks want to avoid by trying to be tempered in their public statements. And the bank surely doesn’t want broadsides against analysts to be another form of forward guidance. That would be a mistake.”

Moss explained that the accuracy of Porter’s critiques is not even the point. “The point is that it’s dangerous for powerful institutions to appear defensive.”

“More communication isn’t necessarily more clarity. Canada has a good news story to tell. At the top of the Group of Seven growth league, it looks like a big beneficiary of the global economic upswing,” Moss concluded. “Don’t spoil it by spending too much time in the trenches.”

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