Bank of Canada Says Additional Time Needed to Meet 2% Target in Some Cases

Bank of Canada Says Additional Time Needed to Meet 2% Target in Some Cases

Bloomberg
By Greg Quinn - Nov 9, 2011 1:02 PM ET


The Bank of Canada said its 2 percent inflation target allows policy makers the flexibility to take extra time to meet their goal in situations such as a severe shock or economic slowdown.

Governor Mark Carney will keep using a horizon of 18 months to 24 months to bring inflation back to target in most cases, while using discretion when financial or economic conditions require otherwise, the Ottawa-based central bank said today.

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Today’s Bank of Canada report gave three reasons for taking longer to meet its inflation goal -- persistent economic or financial shocks, responses to “financial excesses or credit crunches” and risks that create “a degree of uncertainty” to the economy.

The report also included an analysis on monetary policy and financial stability where it concluded that in “some exceptional circumstances” monetary policy may be an appropriate tool to support the financial system.

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Five Years (to do What?!!)

The bank had spent the last five years studying if the targeted inflation rate should be lower or if the level of the consumer price index should be the focus instead of the inflation rate. Both those options were rejected in today’s paper because research showing they may benefit the economy didn’t offset the risks they could introduce.


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