Canada Monetary policy

Changes in general approach by Bank of Canada

The Bank of Canada’s recent policies suggested some changes in its framework and general approach to conducting monetary policies ahead.

  1. Its inflation mandate will be adjusted such that “the 2 percent inflation target is sustainably achieved.” Which means the Bank will be following the practice of the U. S. Fed and will allow inflation be above 2% over a period of time.
  2. The Bank will shift the monetary policy to support employment more than price stability. Unlike the Fed, supporting employment is not yet an explicit mandate for the Bank of Canada. Very likely the Bank will take the opportunity of the current monetary policy review and make employment as its explicit target as well. The policy review is expected to be completed middle of next year.
  3. Under the new governor, Bank of Canada will follow more liberal ideologies, as evidenced somewhat from its monetary policy statement issued yesterday, and more from the press conference by governor Tiff Macklem. He outlined how the COVID-19 induced recession had an uneven impact on Canadians. Those who are vulnerable are hit hardest. The Bank appears regret for being not able to design targeted policies to help those who are in need of great help.
  4. The Bank committed to keep low rates until well into 2023 and to continue its bond purchase program as needed.
  5. Since the new governor was installed, the Canadian dollar has appreciated about 10% in reference to the U. S. dollar. This is partly because of the U. S. dollar weakness and partly because the new governor might be a believer (my best guess) of strong currency which is in contrary to his predecessor.