Tuesday, March 4, 2008

The Envelope Please...

50 beeps it is.

After yesterday's GDP numbers, is one really surprised? Although, of course, the statement characterizes the decision exclusively in terms of downside risks to inflation. I'm unsure to what extent inflation can be beaten into submission from a monetary standpoint in this era of record commodity prices except through currency adjustments. Canadian domestic demand isn't really at play in terms of global wheat/gas/steel/etc/etc/etc prices. The strong Canadian dollar is giving the Bank a lot of tightrope space, in comparison to Bernanke et al who are importing inflation to a much greater extent than we are.

I a priori wanted to call 'Carney put', but a half-point here isn't overly aggressive, and it's not like equity markets are reacting joyously to the news. Either way, 50 or 25 wouldn't have surprised anyone.

Maybe there's scope to move away from quarter-points, and head toward tenths? In a lot of recent decisions, many are seeing a certain level as too little, and the next as too much. There often needs to be some middle ground between disappointment and excitement. I had a post a long time ago wondering why China adjusted reserve requirements by 0.09, and why I might not understand that exact number, I can certainly see scope for smaller than 0.25.

UPDATE: Berkeley reject.

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