The Bank of Canada understands that targeting inflation is still its No 1 job, and that there are limits to its ability to keep borrowing costs on hold to buffer against economic shocks or trouble in the financial system, Governor Mark Carney said today.
In his first remarks on his approach to inflation-control since the Harper government renewed his mandate on November 8th, Carney defended his “flexible” approach, which has seen him keep interest rates at 1% since September 2010, amid price gains that have exceeded his 2% target for much of the past year. Plus, he reiterated that the 2007-09 crisis taught central bankers that in some exceptional cases, monetary policy may be needed to complement attempts by regulators and supervisors to keep the financial system stable.
In both cases, however, Carney came out swinging against so-called policy purists who have expressed concern that he’s moving the central bank too far away from its principal task.
“We make monetary policy in the real world, where shocks are a fact of life,” Carney said in a speech prepared for delivery to the Board of Trade of Metropolitan Montreal. “That is why the Bank responds with a flexible approach, taking decisions guided by considered analysis and informed judgment rather than mechanical rules.”
Click here for the full Globe and Mail article.