Promises, promises: Bank of Canada gets its communications right – Globe and Mail Op-Ed
Last week, the Bank of Canada raised its policy interest rate by 50 basis points, to 4.25 per cent, in line with market expectations of either a 25- or 50-basis-point increase. No surprises there.
The real news was the change in the tone brought by the announcement. Of late, the bank has repeatedly warned Canadians that more rate hikes were coming. Now, further tightening will “depend on the data.”
We think this is a welcome development – and not just because it means the potential end of the tightening cycle, but because the bank gives itself more wiggle room in a very uncertain environment.
More definite statements can be problematic. Back in the second half of 2020, with the overnight rate at its lower bound, the…
Crossed Wires: Does Fiscal and Monetary Policy Coordination Matter?
The onset of the pandemic saw a high degree of coordination between our monetary and fiscal authorities. The Bank of Canada lowered its overnight rate to its effective lower bound and engaged in quantitative easing, governments pumped in stimulus and support programs, and the Office of the Superintendent of Financial Institutions (OSFI) lowered its domestic […] Higher interest rates will cause a recession – how do we pick up the pieces? – Globe and Mail Op-Ed
While many have challenged the pace of the Bank of Canada’s interest-rate hikes, their likelihood of success and the extent to which further increases are merited, it has already become clear that, regardless, a recession is imminent. And while it remains to be seen how deep and how long that recession will be, there is no question it will hurt some more than others.
Will governments be there to pick up the pieces and manage the consequences of higher interest rates? If so, how, and in what ways can they help, given their rather precarious fiscal position, with Ottawa carrying $1.1-trillion in debt?
Among the many things that concern us are the distributional impacts of the looming downturn – some groups are…
C.D. Howe Institute Monetary Policy Council Calls for Bank of Canada to Raise Overnight Rate to 4.00 Percent and Accelerate Reduction in Bond Holdings
December 1, 2022 – The C.D. Howe Institute’s Monetary Policy Council (MPC) recommends that the Bank of Canada raise its target for the overnight rate, its benchmark policy interest rate, by 25 basis points to 4.00 on December 7, and sell some of its holdings of Government of Canada bonds. The Council also recommended that the Bank raise the overnight rate target to 4.25 percent in January 2023, and hold it there through 2023.
The MPC provides an independent assessment of the monetary stance consistent with the Bank of Canada’s 2 percent inflation target. William Robson, the Institute’s CEO, chairs the Council.
Council members make recommendations for the Bank of Canada’s upcoming interest-rate announcement,…
What’s Happening with the Bank of Canada’s Balance Sheet?
When the Bank of Canada buys Government of Canada bonds from commercial banks, it adds them to the asset side of its balance sheet and pays for them by adding to the banks’ deposits (settlement balances) on the liability side of its balance sheet. As a result, the Bank’s balance sheet gets bigger. Amid rising […] The problem of the Bank of Canada’s ballooning balance sheet – Financial Post Op-Ed
The Bank of Canada’s ballooning balance sheet has received lots of attention lately. From $120 billion in early March 2020 it grew over the next 12 months to $575 billion and it still stands at $414 billion today, more than three times what it was. That happened because in response to the pandemic the Bank purchased Government of Canada bonds from commercial banks. It added the bonds to the asset side of its balance sheet and paid for them by boosting “settlement balances” — basically, the commercial banks’ bank accounts with it — on the liability side. Voilà, a ballooned balance sheet.
Three factors suggest the Bank’s larger balance sheet may be with us for a while.
First, although in response to…
The Consequences of the Bank of Canada’s Ballooned Balance Sheet
The Bank of Canada’s balance sheet has undergone a radical transformation since the beginning of the pandemic. The Bank’s total assets more than quadrupled at their peak and still remain 3.5 times higher. The most radical change on the liabilities side has been the increase in settlement balances held by financial institutions at the Bank […] Le faux choix de l’inflation ou de l’emploi – La Presse Op-Ed
On ne peut choisir une combinaison d’emploi et d’inflation, comme on mélange à sa guise l’eau chaude et l’eau froide dans sa douche. Si la Banque du Canada veut maximiser l’emploi de manière durable, elle doit d’abord maîtriser l’inflation autour de 2 %, sa mission première.
Même aux États-Unis, où la Fed a officiellement le double mandat de stabiliser les prix et de maximiser l’emploi « de manière durable », en pratique, l’objectif de l’emploi est subordonné à la lutte contre l’inflation.
Il ne s’agit pas d’une tromperie ou d’un choix idéologique, mais d’un constat empirique : sauf à court terme, on ne peut accroître l’emploi par des taux d’intérêt bas lorsque l’inflation est élevée. Cette politique…
S4 E15: The Future of the Bank of Canada’s Balance Sheet
The Bank of Canada’s balance sheet has ballooned under COVID-19. The C.D. Howe Institute’s Jeremy Kronick and Steve Ambler join host Michael Hainsworth to discuss why, why it won’t be coming down any time soon, and what the implications are for monetary policy as interest rates skyrocket.
Bank of Canada should now pause rate hikes and reflect – Financial Post Op-Ed
The Bank of Canada continued its tightening cycle on Wednesday by announcing a 50-basis-point increase in its target for the overnight rate. That came as a surprise to those who expected a 75-basis point increase, but it’s still a hefty hike.
It continues the Bank’s front-loading of its rate increases, which is intended to reduce the scale of future rate hikes. In our view, this latest increase was needed – both to reduce the harm of further increases and to re-anchor inflation expectations – but now the time has come to pause and reflect.
Since the Bank’s September 7th rate boost, the consumer price index (CPI) numbers for August and September have been published. Headline inflation ticked…
Michael Bordo — History Unlearned Dogs the Federal Reserve’s Inflation Fight
This Memo is extracted from Michael Bordo’s address at the C.D. Howe Institute’s annual David Laidler lecture last month. To: Monetary Policy Observers From: Michael Bordo Date: October 31, 2022 Re: History Unlearned Dogs the Federal Reserve’s Inflation Fight Many of the monetary policy issues long thought resolved are back with a vengeance in 2022. And when one […] C.D. Howe Institute Monetary Policy Council Calls for Bank of Canada to Raise Overnight Rate to 3.75 Percent
October 17, 2022 – The C.D. Howe Institute’s Monetary Policy Council (MPC) recommends that the Bank of Canada raise its target for the overnight rate, its benchmark policy interest rate, by 50 basis points to 3.75 percent on October 26, and maintain the current pace of reduction in its holdings of Government of Canada bonds. The Council recommended that the Bank raise the overnight rate target again in early 2023, before lowering it back to 3.75 percent in a year’s time.
The MPC provides an independent assessment of the monetary stance consistent with the Bank of Canada’s 2 percent inflation target. William Robson, the Institute’s CEO, chairs the Council.
Council members make…