Monetary Policy - Op Eds

The Bank of Canada again held its target for the overnight rate at 5 per cent on Wednesday, as expected.

The clamoring had begun for the bank to consider dropping rates in hopes that inflation is headed back to 2 per cent. However, the latest numbers (for December) disappointed, with headline inflation ticking back up to 3.4 per cent (from 3.1 per cent), and core measures flat or, in the case of CPI-Trim, slightly higher. On Wednesday, the bank stressed upside risks to inflation coming from greater-than-expected persistence.

However, the announcement did not mention geopolitical risks, particularly the effect of the disruption of maritime traffic in the Red Sea, its impact on shipping costs, and the knock-on effects on…

In the current debate about how to make housing affordable in Canada, there is a curious omission: the role of monetary policy, both of excessively loose monetary policy in creating the problem and of more responsible monetary policy in solving it.

The global financial crisis of 2008-09 led central banks around the world to reduce interest rates to historically low levels, which made perfect sense during the crisis, but then to keep them there for more than a decade, which sowed the seeds of the affordability crisis we are now living through. Low rates were justified in two ways: inflation was low, so they seemed appropriate or at least not harmful in their role in inflation-targeting, and banks and other lenders that…

The last two years have not been kind to central banks. Inflation in many countries soared far beyond target, reaching levels not seen in decades. Central bankers have responded with necessary but painful interest rate hikes.

Despite disappointment in the performance of many central banks, let’s not lose sight of key lessons. First, inflation stinks, inflicting most harm on those who can afford it least. Second, central banks are the best institutions we have to make sure it goes away and doesn’t come back. As we head into 2024 and inflation continues to fall, it’s worth remembering why the world established central banks and low inflation targets in the first place.

Until the 1990s, central banks struggled…

The Bank of Canada surprised no one by holding its target for the overnight lending rate at 5 per cent on Wednesday. Last week’s releases by Statistics Canada showing a decline in third-quarter GDP and an uptick in the unemployment rate sealed the deal.

Nevertheless, the announcement made it clear that the bank is not satisfied with the pace at which inflation is falling, stressed that the fight against inflation is not yet won, and stated that they stand ready to boost rates again if inflation numbers disappoint.

It’s clear that the bank is concerned about inflation expectations becoming de-anchored from the 2-per-cent target. They continue to prioritize re-establishing any…

The Bank of Canada once again held its policy rate at 5 per cent on Wednesday, as expected.

After two months of disappointment, with the annual change in the Consumer Price Index ticking up in July and August, inflation resumed its descent in September, falling to 3.8 per cent from 4 per cent. That, plus weak economic numbers, made it practically certain – confirmed by the expectations of financial markets – that the central bank would hold.

The real questions concern the bank’s end point for monetary policy in the medium term and what that means for Canadians.

The bank is probably at the end of its tightening cycle. But this doesn’t mean interest rates are coming back down to where they were before…