Bank of Canada has just announced the inflation target which will put the bank in the position to be more flexible in dealing with global and domestic systemic volatility. Since the objective of Canada's monetary policy is to promote economic and financial well-being of Canadians, it is necessary to keep the inflation stable and lo in order to have a strong labour market which is also inclusive.
In order to achieve its goals, BoC will uphold the 2 per cent inflation target for the coming five years. The target will continue to be defined in terms of the 12-month rate of change in the total CPI or consumer price index, the central bank said in a joint statement with the Canadian government on December 13. The inflation target will continue to be the 2 per cent mid-point of the 1 to 3 per cent inflation-control range. The agreement will run for another five-year period, ending December 31, 2026.
Additionally, the Government and the Bank noted that "given that there is uncertainty about the maximum level of employment that is consistent with price stability, the Bank will continue to use the flexibility of the 1 to 3 per cent control range to actively seek the maximum sustainable level of employment when conditions warrant. The Bank will consider a broad range of labour market indicators and will systematically report to Canadians on how labour market outcomes have factored into its monetary policy decisions. The Bank will also continue to leverage the flexibility of the 1 to 3 per cent range to help address the challenges of structurally low interest rates by using a broad set of tools, including sometimes holding its policy interest rate at a low level for longer than usual. The Bank will utilize the flexibility of the 1 to 3 per cent range only to an extent that is consistent with keeping medium-term inflation expectations well anchored at 2 per cent. The Bank will explain when it is using the flexibility in the framework.”
The financial crisis all over the world along with COVID-19 pandemic have had a tremendous impact on the world economy, and major trends such as shifting demographics and new digital technologies are altering the economy as we know it.
Through the statement, the Government and the Bank acknowledged that a low interest rate environment can be more prone to financial imbalances and hence the Government shall continue to work with the relevant agencies to ensure that Canadian arrangements for financial regulation and supervision are fit-for-purpose and consider changes if and where appropriate.
Furthermore, the Bank will be developing the modeling tools needed to take into account the important implications of climate change on the Canadian economy and financial system. Accepting the limits of monetary policy, the Government and the Bank also acknowledged a joint responsibility for achieving the inflation target and promoting maximum sustainable employment.
If you have any concerns or questions about the impact of the inflation target on the mortgage market do not hesitate to reach out to us at LendX.
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