This is the first decision from new Governor Stephen Poloz. The key line from the prior statement was: “The considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time.”

Full text

The new line is:

As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate. Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target.

The (vague) time element has been removed and replaced with conditions. The knee jerk was higher in USDCAD.

Economic projections:

  • Economy to reach full capacity by mid-2015 (projection the same as April)
  • References to `persistent strength`of CAD removed
  • Flood and strike to trim Q2 growth by 1.3 points but will add 1.8 points in Q3
  • Q2 growth cut to 1.0% from 1.8%, Q3 boosted to 3.8% from 2.3%
  • Sees overall outlook little changed from April forecast, 2013 growth boosted to 1.8% from 1.5%; 2014 growth to 2.7% from 2.8%
  • BOC downgraded slightly its global growth forecast, citing China

Overall, the communication strategy has changed but it looks as though the outlook is the same. It`s tough to take away any sort of bias. Poloz simply found a different way to say the same thing. The real question is: what is `significant`slack? The OIS market is only pricing about a 15% chance of a rate hike 1 year from now. If they see the economy at full capacity in mid-2015, that timeline doesn`t leave much room for significant slack and might mean higher rates sooner, which is CAD bullish.