After Carney’s Curveball

In a June 18th 2008 story, Heather Scoffield of the Toronto Globe and Mail is leading the charge on getting things wrong on the Canadian economy. And she is using supporters  like Dale Orr at Global Insights, Patricia Croft at Phillips Hager North, and Derek Holt at Scotia Capital who is of the opinion that “core inflation is a dead issue in Canada and will remain that way for a long time yet.” Just to let you know,  including those battered by food and energy price increases, core inflation does not include those factors.

And that turns out to be the crux of the story. After criticizing Bank of Canada President Mark Carney for not reducing interests rates Ms. Scoffield acknowledges that the central bank’s  primary mandate  is controlling inflation, not providing the  conditions for banking growth. “And when forced to choose between the  two, it will always choose to keep total inflation (not [just] core) within its target band”.

But having acknowledged that argument, Ms Scoffield echoes the point of Douglas Porter of BMO Nesbitt Burns – “why did they have such a change of heart over  a seven week period? … [Mr Carney] has got some explaining to do.”  This is tantamount to saying “So really now,  we understand the bank’s theoretical mandate; but we reserve the right to judge theBank President on what really matters to us – continued low interest rates.” And of course the spread during this period of time between what the banks pay in interest versus what they charge for their best customers increased including mortage interest rates. So ask for a 5th of understanding here  – who is throwing the curveball ?

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