Bank of Canada to conduct a major review of monetary policy

OTTAWA, (Reuters) – The Bank of Canada will review its monetary policies and is open to making major changes, including a move away from its long-standing practice of targeting inflation, a senior official said on Tuesday.

The deadline for the review is late 2021, when the central bank is due to renew its five-year inflation control agreement with the federal government. The inflation target has been 2 percent for the last 23 years.

Bank of Canada senior deputy governor Carolyn Wilkins said that while the inflation-targeting framework has promoted the economic and financial well-being of Canadians, the decade since the fiscal crisis has shown it is not perfect.

“It is time to conduct a thorough review of the alternatives,” she said in the prepared text of a lecture at McGill University in Montreal.

Wilkins said the bank’s estimate of the nominal neutral interest rate is lower than before the crisis, meaning it has less conventional policy firepower to use in a downturn. The lower rate also means households and investors could take on excessive risk.

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