Op-Eds

The Bank of Canada met market expectations last week by raising its policy rate by 25 basis points, to 4.5 per cent. The bank also changed its tone from hesitant caution to guarded optimism. Its message: Hikes might just be over.

In December, the bank made clear that any further tightening would depend on the data. This time, it stressed that if inflation declines in key sectors to the extent it forecast in its latest Monetary Policy Report, it will hold the policy rate steady and pause to assess the impact of its cumulative rate hikes. A terminal peak of 4.5 per cent would also be in line with the most recent C.D. Howe Institute Monetary Policy Council announcement.

We expect — as most Canadians…

Since starting its fight against inflation last March the Bank of Canada has been focused on little else. That is in stark contrast with many of the country’s finance ministers, who have raised spending and increased government hiring. Coordination between our monetary and fiscal authorities would make the Bank’s job a lot easier. Failing that, however, the Bank should continue do what is necessary to get inflation back to target.

The onset of the pandemic saw unprecedented coordination between fiscal and monetary authorities around the globe, including in this country. The Bank of Canada lowered its policy rate to its effective lower bound (0.25 per cent) and then turned to less conventional monetary…

While the full effects of the Bank of Canada’s rate hikes are not yet known, there is an immediate effect on the central bank’s own finances: growing interest expenses and large financial losses. The bank’s recently released third-quarter financial results showed that for the first time, the bank incurred a net loss: $511-million. This is only the beginning.

This matters, especially at a time of heightened political attention toward monetary-policy issues.

The bank’s revenue is largely derived from its asset holdings, which mainly included Government of Canada bonds and treasury bills. Prior to the COVID-19 pandemic, these bond holdings cost the bank very little, and their returns normally exceeded bank expenses by a wide…

When everyone understands the role they play, this leads to better public policy. For our monetary and fiscal authorities, this means central bankers ensuring a stable value for the currency they oversee, and governments creating the conditions for strong economic growth.

Unfortunately, we lack that in Canada right now, with inflation as high as it has been in 40 years, and an economy potentially heading toward a recession. The Bank of Canada is working hard to bring down inflation. If governments were indeed boosting the economy’s potential, it would make the bank’s job a heck of a lot easier.

With mandates that target inflation – and ones that target maximum sustainable employment as well, such as that of the U.S.…

Last week, the Bank of Canada raised its policy interest rate by 50 basis points, to 4.25 per cent, in line with market expectations of either a 25- or 50-basis-point increase. No surprises there.

The real news was the change in the tone brought by the announcement. Of late, the bank has repeatedly warned Canadians that more rate hikes were coming. Now, further tightening will “depend on the data.”

We think this is a welcome development – and not just because it means the potential end of the tightening cycle, but because the bank gives itself more wiggle room in a very uncertain environment.

More definite statements can be problematic. Back in the second half of 2020, with the overnight rate at its lower bound, the…