There may have been good reasons to raise interest rates this week but the Bank of Canada has not told us what they were.
In fact, its Monetary Policy Report, released Thursday, made a compelling case for leaving the benchmark overnight rate where it was rather than increasing it by a quarter of a percentage point to 0.75 per cent.
Here's some of what the central bank said:
Economic growth in Canada will be weaker than expected. Gross domestic product is projected to grow by 3.5 per cent this year, 2.9 per cent in 2011 and 2.2 per cent in 2012.
Consumer spending will slow to a pace consistent with income growth. (Statistics Canada reported Thursday that retail sales dropped 0.2 per cent in May.)
Business fixed investment has been more subdued than expected and its level is still depressed.
Inflation has been in line with the bank's projection -near two per cent for both core inflation and the consumer price index.
Economic recovery in the United States is weaker than anticipated due to fallout from Europe's sovereign debt crisis and little recovery in household demand.
The policy response to the debt crisis will slow global recovery, with growth forecast to average less than four per cent through 2012.
The bank acknowledged that risks to even this sluggish forecast are considerable.
Global private demand may be insufficient to sustain the recovery, it said.
None of this suggests monetary tightening is necessary.
Not discussed in the report, but clear from the data that accompany it, is the fact that roughly a quarter of Canada's productive capacity is idle. Capacity utilization in the first quarter was 74.2 per cent, far below the rate at which inflation becomes a concern. The average rate from 1987 to 2001 was 83.4 per cent.
The output gap, an economic measure of actual GDP against potential GDP, is negative 1.9 per cent, meaning there is slack in the economy due to weak demand.
The June unemployment rate of 7.9 per cent is still well above the pre-recession level of 6.1 per cent. And employment insurance claims are on the rise again.
In the bank's regional office survey, 95 per cent of firms said they expect consumer price inflation over the next two years to range between one and three per cent.
Defenders of the rate hike argue that the central bank hopes to avert a housing bubble, but the real estate market was already softening before the increase, with the harmonized sales tax in Ontario and British Columbia putting a chill on new-home sales.
Others suggest the bank raised rates to send a message to Canadians to rein in household debt. But making that debt more expensive will only deepen their financial malaise. A better approach to deleveraging would be to encourage financial institutions to restrict personal interest-only revolving credit lines.
While the bank is to be commended for its vigilance against any resurgence of inflation, an insidious destroyer of value, this latest rate hike defies logic. It may even have to backpedal given that the U.S. Federal Reserve is keeping its key rate at 0.25 per cent. Indeed, the only benefit to be realized from higher rates may be that it offers some flexibility if the U.S. drags Canada back into recession.
The bank could respond by cutting rates -and it can't lower rates if they are already near zero.
The rate increase could add $100 to the cost of servicing a mortgage for some households. That's a high price to pay for a little monetary breathing room.