The Bank of Canada building is pictured in Ottawa on September 6, 2011. File photo by THE CANADIAN PRESS

Bank of Canada cautious of future rate hikes

The Bank of Canada remains cautious on future rate hikes due to low- inflation risk

The Bank of Canada remains cautious about future rate hikes as it measures the risk posed by low inflation that continues to fall short of the central bank’s two per cent target, senior deputy governor Carolyn Wilkins said Wednesday.

“Just three weeks ago, the bank decided to leave the policy rate unchanged. We said at the time that while less monetary policy stimulus will likely be required over time, governing council will be cautious in making future adjustments to the policy rate,” Wilkins said in remarks made in New York.

“One of the motivations for caution is that inflation has been in the lower end of the inflation target bands of one to three per cent for quite some time.”

Inflation in Canada slowed over the first half of this year and remained in the lower half of the Bank of Canada’s target range even as the economy grew quickly.

Caution, however, has its limits in times of uncertainty, Wilkins added, including those related to monetary policy and financial stability.

“Whether it is about how aggressive or how cautious policy should be — getting the dosage right demands sound judgment about complex trade-offs,” she said.

“And, like many businesses and households, central banks have established techniques to reduce, where possible, the level of uncertainty they experience.”

Speaking before the Money Marketeers of New York University, Wilkins said the central bank is particularly focused on data that indicate how wages and potential output are progressing, as well as the effects of the two interest rate increases made over the summer. The bank is also following NAFTA negotiations closely.

While higher household debt has likely heightened the sensitivity of spending to interest rate increases, Wilkins said it is difficult at this time to know by how much. There is also uncertainty about the interaction of interest rate increases with the recent tightening of macroprudential rules.

To understand how the bank factors uncertainty into its policy decisions, Wilkins paralleled a scenario involving business people considering large capital expenditures who have the option value of waiting until they are more sure of the returns.

“As with investment, fixed costs of changing policy direction may explain a central bank’s aversion to reversals and motivate a wait-and-see approach to policy,” she said.

That said, she added, it’s unclear how costly policy reversals are for the real economy.

“It is possible that the perceived costs are self-reinforcing because reversals are so rare that they are viewed as policy errors when they do occur, rather than as a sensible reaction to new information.”

The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

Don’t let your guard down, fire chief says after two house fires in Willow Point

Two house fires in Willow Point have Campbell River’s fire chief reminding… Continue reading

Veteran hospice doctor credits Campbell River community for its thriving program

Dr. Deb Braithwaite spent 30 years working with Victoria Hospice Society

Cole Slaney leads the Campbell River Storm on and off the ice

“He’s always the last off the ice,” said Elizabeth Cudmore, the Campbell… Continue reading

Confusion in Campbell River on first day of cannabis legalization

Some users puzzled as dispensaries close just before pot becomes legal across Canada

Tommy Chong says cannabis legalization makes him proud to be a Canadian

Legendary marijuana advocate and comedian celebrates cultural milestone at Kelowna event

B.C. passenger caught smoking weed in a car issued $230 fine

Saanich police did a field sobriety test on the driver and deemed it safe for him to drive

Payette invites critics to ‘come and spend a few days’ with her

Governor General Julie Payette made her first official to B.C. back in March

More pot stores expected in B.C. in coming ‘weeks and months’: attorney general

Attorney General David Eby and Public Safety Minister Mike Farnworth visited the new BC Cannabis Store in the province’s Interior

Telus launches charitable foundation to help vulnerable youth

The Telus Friendly Future Foundation complements other social initiatives by the company, including Mobility for Good

Police say suspicious death of B.C. artist ruled a homicide

Patrick Zube Aylward’s body was found in a residence on a rural road outside of Seton Portage, west of Lillooet, B.C.

Temporary roads being built in areas affected by landslide in northern B.C.

Emergency Management BC news release says Disaster Financial Assistance is available to eligible residents of the Peace River Regional District who may have been affected by the landslides

B.C. tickets win big in Lotto Max draw

Jackpot carried over; B.C. tickets share Max Millions prizes

Most Read