Bank of Canada Monetary Policy

Topics: Inflation, Central bank, Monetary policy Pages: 2 (642 words) Published: July 18, 2013

On the contrary to the policies of the United States, material about Canada’s monetary policy was easily accessible on the Bank of Canada website, straight-forward and easy to understand. It’s clear that their target audience is the average Canadian citizen. They didn’t give the ‘run-around’ so- to- speak, of what their main objectives are, and much of it was watered down so that anyone could comprehend it. The Bank focuses on keeping inflation low, stable and predictable in order to encourage long-term investments for citizens to contribute to lasting economic growth, the creation of jobs and increased productivity – which will ultimately improve standard of living. This strategy is encompassed by the inflation control target that was adopted by the Bank of Canada in 1991, which sets a control range of 1-3 percent, ideally with a 2 percent midpoint. And, looking at historical statistics since its inception, the Bank has been able to maintain this control effectively. For example, inflation rate for 1Q 2013 was 1.3%. According to the Bank, this monetary policy is implemented by influencing short-term interest rates which is done by raising or lowering the target for the overnight rate. In the end, a reduction in the policy rate, or easing of monetary policy, can be expected to boost total demand for Canadian goods and services, and vice versa. In addition to this, another goal for the Bank is maintaining flexible exchange rates – which they consider best suited for achieving their inflation target. The floating Canadian dollar provides an exchange rate buffer which allows the economy to absorb and adjust to economic shocks it may encounter. Though additional factors like exchange rates and unemployment seem to be important to policy makers, they are not focused on as intently as inflation and little information is available in regard to them. Their thinking is that monetary policy cannot have a systematic and sustained effect on any...
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