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C.D. Howe Institute’s Monetary Policy Council Calls for Bank of Canada to Maintain its Benchmark Interest Rate at 0.25 Percent, With Increases in 2010


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Toronto, October 15 — The C.D. Howe Institute’s Monetary Policy Council (MPC) today recommended that the Bank of Canada hold its target for the overnight interest rate at 0.25 percent at its next announcement on October 20, 2009. The Council further recommended that the Bank keep the target at 0.25 percent at the Bank’s subsequent announcement in December, in keeping with the Bank of Canada’s conditional commitment to do so into 2010. The MPC looked for a target of 0.50 percent in the next six to twelve months. The overnight rate is a very short-term money-market rate that the central bank targets for monetary policy purposes.

The MPC is a panel sponsored by the C.D. Howe Institute to provide an independent assessment of the monetary stance most appropriate for the Bank of Canada as it seeks to achieve its 2 percent inflation target. Finn Poschmann, the Institute’s Vice President, Research, chaired today’s meeting, the Council’s fiftieth.

The MPC’s formal recommendation is its median vote. All members attending the meeting recommended a target of 0.25 percent at the next setting, and at the following setting in December. When asked to look six to twelve months ahead, one member called for the target to stay at 0.25 percent, six called for a target of 0.75 percent, two called for a target of 1.00 and one called for 2.00 percent.

Council members were generally of the view that economic conditions were little changed since the last rate-setting announcement, hence a shift in policy stance was unwarranted. The primary factors underpinning members’ views were stable or mildly improving domestic economic and financial indicators, including employment and manufacturing output, and the fact that credit markets are functioning with near normalcy.

Growth risks identified by members included continuing difficulties in the United States’ financial sector and a sluggish labour market in the US. A rising Canadian dollar exchange rate was also identified as a potential drag on export growth.

MPC members concurred that inflation expectations remain well-anchored at 2 percent, and felt that the Bank of Canada should continue to reinforce them.

The Council again discussed the Bank of Canada’s conditional commitment to keep the overnight rate unchanged until mid-2010. Some members observed that the Bank should continue to emphasize that commitment’s conditionality on the Bank’s inflation forecast, and some members felt that upcoming reviews of the Bank’s conduct of monetary policy should discuss its inflation forecasts and how it would act when those forecasts changed.

The recommendation of the MPC is the median of the votes cast by individual members attending the session. The table shows the median votes and individual recommendations for the overnight rate at the October 20, 2009 setting and the December 8, 2009 setting, as well as the group’s views about the target in 6-to-12 months’ time.

MPC Members
Oct. 20     
Dec. 8     
6 to 12 months     

Edward A. Carmichael

Ontario Municipal Employees’ Retirement System (OMERS)     

.25% .25% 2.00%

Thorsten Koeppl 

Queens University

.25% .25% 1.00%

Angelo Melino

University of Toronto

.25% .25% .75%

Doug Porter

BMO Capital Markets

.25% .25% .75%

Angela Redish

University of British Columbia

.25% .25% .75%

Nicholas Rowe

Carleton University

.25% .25% .75%

Avery Shenfeld

CIBC World Markets

.25% .25% .25%

Pierre Siklos

Wilfrid Laurier University

.25% .25% .75%

Andrew Spence

TD Securities

.25% .25% .75%

Craig Wright

RBC Financial Group

.25% .25% 1.00%
Median Vote .25% .25% .50%


The views and opinions expressed by the Council’s members are their own and do not necessarily reflect the views of the organizations with which they are affiliated, or those of the C.D. Howe Institute.

The MPC’s next vote will take place on December 3, 2009, prior to the Bank of Canada’s interest rate announcement on December 8, 2009.

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Contact: Kristine Gray — phone: 416-865-1904; e-mail: kgray@cdhowe.org.


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