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C.D. Howe Institute’s Monetary Policy Council Urges Bank of Canada to Hold Overnight Rate at 1.00 Percent


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January 16, 2014 — The C.D. Howe Institute’s Monetary Policy Council (MPC) today recommended that the Bank of Canada keep its target for the overnight rate, the very short-term interest rate the Bank targets for monetary policy purposes, at 1.00 percent at its next announcement on January 22, 2014. The Council further called for the Bank to hold the target at 1.00 percent through to January 2015.

The MPC is a panel sponsored by the C.D. Howe Institute to provide an independent assessment of the monetary stance appropriate for the Bank of Canada as it aims for its 2 percent inflation target. William Robson, the Institute’s President and Chief Executive Officer, chaired the Council’s 83rd meeting.

MPC members make recommendations for the Bank of Canada’s upcoming interest-rate announcement, the subsequent announcement, and the announcements six months and one year ahead. The Council’s formal recommendations for each announcement ­­are the median votes of the members.

While a majority of the ten MPC members attending the meeting favoured a 1.00 overnight rate over the next 12 months, the balance of opinion tilted slightly toward a rate cut during the next six months, before coming back to 1.00 or marginally above it by January 2015. Two members called for an overnight rate of 0.75 percent next week and in March 2014. By January 2015, when seven of the ten favoured an overnight rate of 1.00 percent, one favoured 0.75 percent and two an overnight rate of 1.25 percent.

Both the majority in favour of an unchanged overnight rate, and the slight leanings toward a cut in the nearer term and an increase later on, reflected a tension in the group’s outlook. MPC members tended to assess the outlook for global economic activity more positively than they had at the Council’s past few meetings, with a pickup in the United States being the most important factor, as well as a less fraught situation in Europe and continued momentum in Asia. Their views on Canada were less positive, with several members expressing concerns that the more supportive global environment was not boosting Canadian exports commensurately, and the discussion highlighting weakness in the Canadian labour market, continued below-target inflation readings, and a tendency for inflation expectations in Canada to fall below target.

The recent decline in the Canadian dollar, especially against its US counterpart, was a major topic of discussion. Several members thought that continued divergence between a tapering Fed and a dovish Bank of Canada would send it lower over the coming year. Members generally welcomed the weaker dollar, seeing it as supportive of a rotation in Canadian activity away from consumption and housing and toward net exports and non-residential investment. Some members, however, thought that the weak dollar simply reflected weakness in Canada’s terms of trade, as well as continued economic slack, and felt that the Bank of Canada should do more – either by cutting rates or by signaling its willingness to do so – to support spending and output. Several members noted that signs of a housing bubble in Canada were less alarming than they had been, and that domestic imbalances provided less of a justification for maintaining or increasing the overnight rate than at previous meetings.

The following table shows the votes of each MPC member, as well as the Council’s median vote, for the relevant Bank of Canada policy-rate announcements.

MPC Members Jan. 22 Mar. 5 6 months 12 months

Craig Alexander

TD Bank Group

1.00% 1.00% 1.00% 1.00%

Steve Ambler

Université du Québec à Montréal (UQAM)

1.00% 1.00% 1.00% 1.00%

Edward A. Carmichael 

Ted Carmichael Global Macro

0.75% 0.75% 0.75% 0.75%

Stéfane Marion

National Bank

1.00% 1.00% 1.00% 1.25%

Angelo Melino

University of Toronto

1.00% 1.00% 1.00% 1.00%

Doug Porter

BMO Capital Markets

1.00% 1.00% 1.00% 1.00%

Nicholas Rowe

Carleton University

0.75% 0.75% 1.00% 1.25%

Avery Shenfeld

CIBC World Markets Inc.

1.00% 1.00% 1.00% 1.00%

Pierre Siklos

Wilfrid Laurier University

1.00% 1.00% 1.00% 1.00%

Craig Wright

RBC Financial Group

1.00% 1.00% 1.00% 1.00%
Median Vote 1.00% 1.00% 1.00% 1.00%


The views and opinions expressed by the participants 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 February 27, 2014, prior to the Bank of Canada’s interest rate announcement on March 5 2014.

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

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