Monetary Policy - Op Eds

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…

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…

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…

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…

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…