In a few months’ time, Finance Minister Bill Morneau and Bank of Canada Governor Stephen Poloz will be deciding together on the BoC’s trajectory for the next five years, a move that a markets observer argued would allow the Trudeau administration to effect massive impact on the country’s financial system.
“[The decision] could be the Trudeau government’s only chance to influence monetary policy. That’s significant because there are growing doubts about whether central banks are going about their work the right way,” Kevin Carmichael wrote in a commentary for Canadian Business
Among the most significant probable outcomes is a drastic revision of the Bank’s mandate, especially in a financial environment that has seen far-reaching changes over the past two decades, Carmichael said.
“Since the early 1990s, the Bank of Canada essentially has had one job: keeping annual inflation at about 2%. For a long time, it was very successful, and other central banks followed suit. But with interest rates now at historic lows and inflation running below target, a growing number of influential economists are calling for an overhaul.”
But while the discussion on the possible amendments to the BoC’s role (such as a focus on sustainability or job creation instead of inflation) has been vibrant, Carmichael lamented that the well-meaning suggestions from public intellectuals—which have seen print over the past few weeks and months—are a mite overdue.
“All these suggestions have merit. Unfortunately, [the thinkers] are late to engage. The Bank of Canada dutifully let the public know that it was studying the terms of its mandate almost two years ago. That was the moment to cause a fuss,” he stated.
A crucial ingredient in any change to monetary policy would be intense dialogue between the government and the stakeholders, including the public at large.
“The result of this process might still be a restating of the 2% target. But there would be one important difference: there would be fewer doubts about whether the central bank was doing the right thing.”