Modern problems are making the BoC reconsider its approach

by Ephraim Vecina on 22 Nov 2018

Economic vulnerability, along with greater fiscal risks among Canadians and investors alike, is making the Bank of Canada reconsider its time-tested inflation-focused policy, senior deputy governor Carolyn Wilkins said earlier this week.

“There are a couple of challenges facing our framework that mean it may not serve the economic and financial welfare of Canada in the future as well as it has in the past,” Wilkins told the McGill University’s Max Bell School of Public Policy in Montreal, as quoted by The Canadian Press.

The long-standing approach, which aimed to keep inflation close to the 2% target, might have played a role in driving consumers to take on greater risk, as evident in recent record-high household debt levels.

Read more: Celebrating a ‘soft landing’ might be premature

“Even a well-functioning monetary-policy framework deserves an open-minded discussion, particularly in the post-crisis world we live in,” Wilkins admitted.

The BoC allayed the fears with the announcement of its collaboration with the federal Finance Department, to conduct research on what approach would work best in addressing current and future risks.

Higher inflation targets and cutting the benchmark rate “as a way to lower the costs of borrowing and stimulate economic activity” are some of the options on the table, Wilkins stated.

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