If it ain’t broke: Canadians want central bank to keep policy framework

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OTTAWA, Nov 9 (Businesshala) – The Bank of Canada should not change its three-decade-old monetary policy framework, which is resilient enough to deal with bouts of price hikes, especially on hot inflation by tweaking it. Public concern could arise, analysts say.

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The inflation target renewal, done jointly with the federal government every five years, is due by the end of the year and comes at a time when central banks around the world are grappling with how uneventful the COVID-19 pandemic is. Rebound should be managed.

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Under its current inflation-targeting framework, the Bank of Canada targets the 2% midpoint of the 1%-to-3% control range. For the first time since 1995, the central bank is reviewing not only the target, but also four alternative frameworks. This worries some analysts.

“If it ain’t broke, don’t fix it,” said Doug Porter, chief economist at BMO Capital Markets. “From my point of view, the current policy of the bank gives too much leeway to do what needs to be done.”

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“This is really ‘tampering with danger’, changing the language around the inflation target at a time when there is a lot of anger about inflation,” he said.

A Nanos Research poll last month found that more than half of Canadians are not comfortable with the idea of ​​giving banks more flexibility to allow inflation to warm up.

The central bank’s own outreach, conducted throughout 2020, similarly found that most Canadians support continued use of inflation targeting, although many said they felt the 2% target did not accurately represent inflation.

“I think we have a very good framework,” said former Bank of Canada governor David Dodge. “Everyone understands what our current framework is.”

As Canada’s annual inflation rate stood at 4.4% here in September, its sixth month above the central bank’s target range, the bank is taking a flexible approach to its target to help restart jobs. Employment has now returned to pre-pandemic levels.

At the same time, some 87% of Canadians are more concerned about rising costs than losing their jobs or income, while 80% of Canadians say their earnings have not kept pace with rising grocery prices, as in the past. That’s according to the Angus Reed survey of the month.

The Bank of Canada indicated here last month that the first interest rate hikes could be expected months in advance, as inflation continues to rise due to global supply chain disruptions.

setting a goal

The US Federal Reserve announced last year’s move to an average inflation target of 2% from a 2% inflation target during the annual Virtual Central Bankers’ Meeting held annually in Jackson Hole, Wyoming. Average inflation targeting is one of four framework options the Bank of Canada is studying.

“I don’t see this as a Jackson Hole moment for the Bank of Canada. … the bank had that flexibility even before the Fed adopted it; they just have to use it,” said Derek, head of capital markets economics at Scotiabank Holt said.

Andrew Calvin, chief Canada strategist at TD Securities, said he expects the Bank of Canada to “distinguish” a more flexible target, whether by changing the framework or making existing flexibility more explicit.

“I think it’s just going to be a scenario where they codify the philosophies and actions that have guided them through this pandemic,” he said. “Because if they weren’t taking a flexible stance, rates would be higher today.” (Reporting by Julie Gordon in Ottawa, Editing by Steve Scherer and Jonathan Otis)


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