The alternative policies for monetary policy framework being reviewed include average-inflation targeting; price-level targeting; an employment-inflation dual mandate; nominal GDP growth and level targeting, Bank of Canada (BoC) senior deputy governor Carolyn Wilkins said.
Additional takeaways
“Central bank’s review of alternative monetary policy options has identified some strengths and weaknesses of different frameworks; so far no single framework dominates on all margins.”
“Current economic crisis has made it crystal clear that central banks are likely to run out of conventional firepower if we see an economic downturn in a low-interest-rate world.”
“Economic environment has also made it clear that long periods of low interest rates encourage investors to take on the risk that may be excessive; cites high levels of indebtedness in Canada and around the world.”
“Bank is also considering raising the current 2% inflation target as part of its review.”
“Review considering more novel criteria like how each framework impacts the distribution of income and wealth as well as how robust the frameworks are in good and bad economic times.”
“Existing 2% inflation goal is a clear target; it’s simple to see if the central bank has done its job or not.”
“Current monetary policy framework is also flexible in terms of how fast the bank can aim to return inflation to target.”
“Seeing unconventional monetary policy tools in action during COVID-19 has put renewed focus on how these tools are impacting both asset prices and decisions on borrowing and lending.”
“Monetary policy is ill-equipped to deal with sector-specific issues; the central bank should take these issues into account but the focus must be on macroeconomy to support sustainable growth and price stability.”
Market reaction
The USD/CAD pair edged slightly lower in the last minutes and was last seen trading flat on the day at 1.3170.
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