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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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May 23, 2013 — The C.D. Howe Institute’s Monetary Policy Council (MPC) today recommended that the Bank of Canada maintain 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 May 29, 2013. The Council further called for the Bank to hold the target at 1.00 percent through to May of 2014.

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 the seventy-eighth meeting of the Council.

The MPC’s formal recommendations ­­are the median votes of members attending the meeting. Members give their individual recommendations for the Bank of Canada’s upcoming interest-rate announcement, the subsequent announcement, and the announcements six months and one year ahead. On this occasion, nine of the 11 voting members called for a 1.00 percent target next week, while two called for the Bank to lower the target to 0.75 percent. Members’ votes were the same for the following setting in July. For December 2013, one member raised his target from 1.00 to 1.25 percent, with other votes unchanged. Two members called for 1.25 percent by May 2014, and another sought 1.00 percent.

No members sought an immediate or near-term rise in the overnight rate, notwithstanding a number of positive current economic indicators. Among these, members pointed to Canadian retail sales data and output figures from first quarter 2013, which indicated early year performance that will exceed Bank of Canada forecasts, and business investment that has returned to near its pre-recession path. Other positive indicators include strengthened United States housing prices and demand relative to inventory, rising housing starts and associated demand for Canadian exports.

Among the negative indicators, which militated against withdrawing current monetary stimulus, were continuing weak export performance, the likelihood of weak second quarter output growth, and a possible widening of the gap between actual and potential output. Further downside risks arising from the United States include weak manufacturing performance, and the apparent drag on output created by the US federal government’s fiscal constraints.

More generally, the members of the Council saw no apparent risks of rising inflation expectations, amid generally subdued consumer price growth.

Most voting members expressed the view that the Bank of Canada should remove language, from its next statement, expressing any bias toward a potential increase in the overnight rate. Most members also felt that the Bank of Canada should provide clearer guidance on the conditions under which current monetary stimulus would be removed. Some members, expressing concern with respect to financial stability, also were of the view that the Bank’s statement should provide a brief discussion of the potential market risks associated with the pace and the scope of a subsequent withdrawal of monetary stimulus.

MPC Members May 29 July 17
6 months
12 months

Steve Ambler

Université du Québec à Montréal (UQAM)

1.00% 1.00% 1.00% 1.00%

Paul Beaudry

University of British Columbia

1.00% 1.00% 1.00% 1.00%

Edward A. Carmichael 

Ontario Municipal Employees’ Retirement System (OMERS)

0.75% 0.75% 0.75% 1.00%

Stéfane Marion

National Bank

1.00% 1.00% 1.00% 1.00%

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%

Christopher Ragan

McGill University and David Dodge Chair in Monetary Policy, C.D. Howe Institute

1.00% 1.00% 1.25% 1.25%

Nicholas Rowe

Carleton University

0.75% 0.75% 0.75% 1.00%

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% 1.25%
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 July 11, 2013, prior to the Bank of Canada’s interest rate announcement on July 17, 2013.

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

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