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Douglas Porter

Douglas Porter

Chief Economist at BMO

September 11th, 2017

BMO chief economist Doug Porter took issue with the central bank's lack of public remarks in the eight weeks before the rate increase.

In a note to clients, Porter said he had no problem with the rate increase itself because the stronger economy had made a solid case for it.

But he blamed the information vacuum for causing a "great deal of uncertainty" and a "fairly violent market reaction."

Canadians hadn't heard a peep from the central bank since it raised the rate July 12 for the first time in nearly seven years, Porter wrote in Friday's note.

Ahead of the July increase, senior officials including governor Stephen Poloz sent clear signals the bank had shifted to a rate-hiking path.

However, for nearly two months before last week's announcement, the bank went dark.

"There was no communication since the last meeting. Zilch. Zip. Nada. Nothing," wrote Porter, who had been predicting the bank would wait until October to raise the rate.

"What we had here was a failure to communicate - an epic fail."

Last week's hike also came as a surprise, Porter argued, pointing to one survey that found only six of 33 forecasters had anticipated the increase.

In response to Porter's criticisms, the Bank of Canada released a detailed defence of its communications approach.

Bank of Canada spokesman Jeremy Harrison said in a statement that market data before the hike showed the odds of a hike were about 50-50.

Porter, meanwhile, said he believes there have been profound implications from the bank's progressive shift in tone. He suggested the steep climb in the value of the Canadian dollar since the spring has been related to the bank's tone swing from that of an institution on the verge of another rate cut as recently as early 2017 to that of "the most aggressive hiker in the world."
crashonomics

Looks like BMO has been caught making a bad trade or they wouldn't be stirring the pot. It was 50-50 when it came to a rate hike in September and they were obviously betting on October.

Ian Lee, an economics professor at Carleton University, said the fact market expectations of a rate hike last week were about 50-50 suggests the bank could have offered more information to help keep traders from going down the wrong road.

It's not the BoC's mandate to tip off traders. You guys just made a bad bet, suck it up.

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