Rate surprise risks engulfing Bank of Canada in political storm

The Bank of Canada’s interest-rate surprise potentially opens up Governor Tiff Macklem to the accusation that he and his governing council are reacting to political sniping against them, economists said.

The central bank raised its overnight rate by 50 basis points on Wednesday to 3.75 per cent . Traders and a majority of economists polled by Bloomberg were anticipating a larger increase of 75 basis points. 

Those expectations were based, in part, on Macklem’s Oct. 14 remarks that the bigger policy risk was under-tightening. Five days later, Statistics Canada reported headline inflation of 6.9 per cent  for September, which appeared to the seal the case for a larger hike. 

But monetary policy has become a target for some on the political left.