BOC senior deputy governor Carolyn Wilkins
- The bank will review monetary policy framework in run-up to late 2021
- it is open to considering major changes
- inflation targeting has worked well, but the decade after the 2008 crisis shows is not perfect
- it is time to thoroughly review alternatives
- review will take into account the fact that the neutral interest rate is lower than before, which reduces conventional policy firepower in case of a downturn
- lower neutral interest rate could also encourage households and investors to take on excessive risk and leaves the economy exposed to boom bust financial cycles
- there are several intriguing frameworks that merit further exploration, although none is perfect
- raising level of inflation target the 3 or 4% would hit people living on fixed incomes could hit banks credibility
- one option for bank could be to commit to keeping level of aggregate prices on steady growth path say 2% a year; drawback is that the idea is hard to understand
- another option is extending banks objectives to stabilize employment or nominal income, says "we need to update our analysis of the trade-offs"
- this is why back will focus on comprehensive side-by-side assessments of alternative frameworks
- frameworks need to focus only on objectives that monetary policy can actually achieve; monetary policy cannot solve structural issues
- bank will also work on options to strengthen its slate of unconventional policy tools, says there is some debate as to whether they are effective at achieving inflation objectives
The USDCAD is moving higher on the headlines.
