Bank of Canada may not hike rates back to ‘normal’ even when economy recovers

Deputy Governor John Murray reminds markets in an article published Thursday that there is no precise check list when it comes to monetary policy.

Deputy Governor John Murray reminds markets in an article published Thursday that there is no precise check list when it comes to monetary policy.

Monetary Policy according to the BoC is much different than predictions made by the OECD which estimates Bank of Canada may need to start hiking its trendsetting interest rate within the next year and steadily push it to 2.25 per cent by the end of 2015, according to an international think-tank representing the world’s leading economies.

Reblogged from The Financial Post, Reuters

OTTAWA — The Bank of Canada does not necessarily need to raise interest rates to “normal” levels even if the economy is running at full speed and inflation is close to the target level, Deputy Governor John Murray said in an article published on Thursday.

Murray addressed what he called five common misconceptions about Canadian monetary policy in the institution’s quarterly Bank of Canada review.

One such idea is the view that when inflation is nearing the central bank’s 2% inflation target and the economy is at full capacity, that benchmark rates should be “neutral,” a level much higher than the current 1%.

“Headwinds and tailwinds are often present, threatening to push economic activity and inflation higher or lower,” Murray wrote. “Monetary policy needs to lean against these forces with opposing pressure from higher or lower interest rates to stabilize the economy and keep inflation on target.”

The comment is a reminder to markets that there is no precise check list of factors the Bank of Canada needs to see before raising or cutting rates.

Read More … 146 more words

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