The sobriety of the Bank of Canada's statement yesterday on its interest-rate increase is a prudent counterbalance to the recent wave of Canadian self-congratulation.
The generally favourable trio of Statistics Canada reports on Monday, on gross domestic product, the balance of payments and industrial product prices had removed almost all remaining doubt that Mark Carney and his colleagues would raise the Bank of Canada's overnight interest from a minimal 0.25 per cent, but the message that accompanied the announcement of a rise by a quarter of a percentage point warned that the "global economic recovery … is increasingly uneven across countries…. The required rebalancing of global growth has not materialized."
In other words, Canadians have much to be thankful for, in their comparative prosperity and in the conservatism of their financial institutions. But the Canadian economy has been involved in the rest of the world, ever since the international trade in fur and cod began in the 16th century. It cannot be immune to the recurring disturbances in the global economy.
Mr. Carney had already spoken of a return to a normal interest rate. It is clear from the central bank's announcement that he meant normality not only in the sense of the typical range of policy rates, but also in the very structure by which that rate is arrived at.
As well as making a modest upward increase to 0.5 per cent, a rise of 25 basis points, the Bank of Canada has returned to its established framework, with immediate consequences that are being implemented between now and June 16.
Since 1995, the central bank's policy has been to aim at a target rate in the middle of a defined range; this was done in tandem with the design of a new electronic system for the clearing of payments among financial institutions, implemented in 1999. On a daily basis, there is supposed to be a little leeway in the matching of payments: a small positive balance of $25-million. But, as an emergency measure, in April, 2009, the central bank raised that figure to $3-billion, to keep the policy rate at the bottom end of the range, and to encourage banks to lend.
The emergency being past, that $3-billion is to dive back down to $25-million, as of two weeks from today.
The renewed normality is thus not yet full recovery, and Mr. Carney has not promised lenders an upward path to higher returns. This still amounts to considerable stimulus - not just a faint echo of the recession.