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The phrase to remember in Carney’s final rate statement

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On his way out the door, the usually talkative Bank of Canada Governor Mark Carney had remarkably little to say.

The central bank's regularly scheduled interest-rate policy statement Wednesday morning – the last one by Mr. Carney's hand, as he departs at the end of the week – contained near nothing for investors and policy watchers to dig their teeth into. While these statements, released eight times a year, are routinely dry and vary only in small ways from the wording of the previous statement, even by that standard this statement was notable for its stand-pattedness.

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Not that surprising, really – Mr. Carney wasn't going to apply a new policy stamp on the bank as he waved goodbye, forcing his successor, Stephen Poloz, to live up to it. Better to leave things as-is and let the new guy start sorting it out for himself when he shows up for work Monday morning.

A few phrases in the statement were altered from the previous release in mid-April, and I'll get to those in a minute. But first, the one big thing that didn't change: The bank's so-called "tightening bias."

"With continued slack in the Canadian economy, the muted outlook for inflation, and the constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required , consistent with achieving the 2 per cent inflation target."

It's word-for-word what the bank said in April. The implication (other than the aforementioned don't-mess-things-up-for-Steve logic) is that despite the recent weaknesses in inflation and corporate profits, sluggish job growth, and a slowdown in the growth of household debt, the bank still feels justified leaning – if ever so slightly – toward raising rates somewhere down the road. If you were looking for any whiff of possibility of a small rate cut to give the Canadian economy a bit of juice, it ain't here.

Now, a look at what changed in the statement:

"In Canada, recent economic indicators suggest that growth in the first quarter was stronger than the Bank projected in April."

This is nothing more than a recognition of the obvious. The Bank of Canada's April economic estimates pegged first-quarter GDP growth at 1.5 per cent annualized. The better-than-expected economic data from the quarter have private-sector economists estimating that growth was more like 2.0 to 2.5 per cent. Nevertheless, the central bank is still sticking with its full-year growth forecasts of 1.5 per cent – for now, anyway.

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Growth in China has continued to ease from very strong rates, weighing somewhat on global commodity prices . "

In the April statement, the bank was still talking about "elevated" prices for commodities produced in Canada. Its acknowledgment that a Chinese slowdown is hurting Canadian commodities does, indirectly, imply that some heat should come off the commodity-sensitive Canadian dollar. But the bank doesn't actually say that. In fact, it continues to expect that that exports will be "restrained" by "the persistent strength of the Canadian dollar."

"Over the projection horizon … business investment [is expected] to grow solidly."

The bank is underlining its confidence in this, despite businesses' subdued intentions for investments this year and the drop in first-quarter corporate profit numbers released this week. If there's one phrase inserted into the statement that should raise eyebrows, this might be it.

David Parkinson is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights , and follow him on Twitter at @ParkinsonGlobe.


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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More


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