Oil’s slide complicates rate hike decision.

BoC telegraphed price shock mostly in the past

During a media interview on June 13, Bank of Canada governor Stephen Poloz seemed pretty confident that things were looking up. The Canadian economy is gathering momentum, he suggested; two successive interest rate cuts in early 2015 had (maybe) “done their job,” and the November 2014 oil price shock was fading into memory.

And why wouldn’t he be confident? After years of what Poloz once called “serial disappointment,” GDP growth had just come in at a whopping 3.7 per cent for the first quarter, and oil prices had seemed to stabilize. Likewise, capital investment in the energy sector had picked up — a big factor in rising GDP. As Bank of Canada senior deputy governor Carolyn Wilkins said in a speech in Winnipeg the day before, “the adjustment to lower oil prices is now largely behind us.”

Taken together, markets considered Poloz’s and Wilkins’s statements as unusually bullish for the economy and hawkish for rates.