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Pierre L. Siklos – For Central Banks, it’s a Question of Credibility

From: Pierre L. Siklos To: Minister of Finance Date: July 27, 2017 Re: For Central Banks, it’s a Question of Credibility Central bankers have become fond of repeating to the public that they were, and are, following a flexible rule for setting interest rates in response to movements in inflation or the amount of slack […]

Bank of Canada bets on growth with interest rate hike: Globe and Mail Op-Ed

Canadian monetary policy has just seen one of its most significant U-turns in recent years. On May 24, the Bank of Canada announced that it was holding its overnight rate steady. The tone of the announcement was less dovish than the previous one, but contained nothing to indicate impending rate increases. Shortly after the May announcement, markets were predicting a 5-per-cent chance of a rate increase in July. However, in the days preceding Wednesday’s announcement, that probability surpassed 90 per cent. With the bank increasing rates on Wednesday, how did we get so quickly from there to here?

Let’s start with the case for the rate hike. Unemployment has fallen to 6.5 per cent, GDP growth in the first quarter of 2017 was robust…

Bank of Canada Should Hold Overnight Rate at 0.50 Percent Next Week; Hike to 1.25 Percent by July 2018: C.D. Howe Institute Monetary Policy Council

July 6, 2017 — In a tight vote, the C.D. Howe Institute’s Monetary Policy Council (MPC) called for the Bank of Canada to keep its target for the overnight rate, the very short-term interest rate it targets for monetary policy purposes, at 0.50 percent at its next announcement on July 12, 2017.  The MPC called for the Bank to hike to 0.75 percent at the following announcement in September, with further hikes to 1.00 by January 2018 and 1.25 by July 2018.

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 President and CEO, chairs the Council.

Council members make recommendations for the Bank of…

Why the Bank of Canada needs to prepare Canadians for rate hikes: Globe and Mail Op-Ed

We have been stuck in a low-interest period for almost a decade now, and with that apparent inertia comes the challenge of knowing when to start reversing course. Last Wednesday’s interest rate announcement and press release by the Bank of Canada were slightly more hawkish (or slightly less dovish) in tone than its previous announcement, but it gave no explicit hints that rate increases are on the immediate horizon. However, stronger economic data that support the bank’s own internal forecasts suggest they should be. At a minimum, communication with the public should start to prepare the market for such increases.

To understand why, let’s review the concept of the neutral rate of interest. In the world of central banking, the…

Bill Robson on Bloomberg: Dallas Fed speaks out on U.S.-Canada trade

Dallas Fed President Robert Kaplan says he feels very strongly that the U.S. trade relationship with both Canada and Mexico are essential to U.S. competitiveness.  Bloomberg TV Canada talks to Bill Robson, President & CEO, C.D. Howe Institute about the Fed’s position on trade and its impact on the economy.

Bank of Canada Should Hold Overnight Rate at 0.50 Percent Next Week; Hike to 1.00 Percent by May 2018: C.D. Howe Institute Monetary Policy Council

May 18, 2017 — The C.D. Howe Institute’s Monetary Policy Council (MPC) said the Bank of Canada should keep its target for the overnight rate, the very short-term interest rate it targets for monetary policy purposes, at 0.50 percent at its next announcement on May 24, 2017.  Looking ahead, the Council said the Bank should hold the target at 0.50 percent over the next six months, and hike to 1.00 percent by May of 2018.

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 President and CEO, chairs the Council.

Council members make recommendations for the Bank of Canada’s upcoming interest-rate…

The Bank Of Canada’s Tone Shift Should Be A Cause For Concern: Globe And Mail Op-ed

The Bank of Canada announced on Wednesday, in a familiar refrain, that it is maintaining its target for the overnight rate. However, the announcement and accompanying news conference signalled a definite change of tone. Barring major negative surprises, it took the possibility of a rate cut off the table. With inflation at target, should the positive economic news continue, a rate hike before 2018 is a real possibility. Two questions arise: first, what might cause this earlier rate hike, and second, is it necessarily a good thing?

Positive economic news that leads to an improvement in the real economy, and thereby an increase in inflation would be a good problem for the Bank of Canada. However, there are at least two…

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