Quebec Standard

Thursday, January 27, 2022

Bank of Canada’s updated policy in place; Employment market considered with targeting inflation

Bank of Canada out with its new mandate

A minor but significant adjustment to the bank’s previous policy is now in force. Tiff Macklem, Governor of the Bank of Canada, and Finance Minister Chrystia Freeland clarify what has changed. The Bank of Canada’s new mandate will see the central bank specifically target inflation in the one to three percent range and begin to consider the employment market when formulating policy options.

At 11 a.m. ET news conference in Ottawa, Finance Minister Chrystia Freeland and Bank of Canada governor Tiff Macklem provided more specifics on the bank’s new mandate. Likewise, the Bank of Canada has been targeting inflation since 1991, when its purpose was to formulate policy to manage inflation between one and three percent.

Assuming everything else is equal, the bank’s sole responsibility is to try to push inflation up or down as necessary. When low inflation occurs, the bank’s interest rates are usually lowered to stimulate borrowing, spending, and development. To cool things down, it raises its rate when inflation rises above that range.

The system has primarily functioned effectively for decades. Still, the epidemic has thrown a monkey in the works, with persistently low-interest rates leading inflation to run near zero earlier in the pandemic and to an 18-year high later.

The new mission allows the bank to continue targeting inflation as it has in the past. Still, it also allows it to consider what’s going on in Canada’s labour market when determining policy.

Source: CBC News

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