MONTRÉAL, Feb. 7, 2014 /CNW/ - The Bank of Canada's flexible inflation
target has served Canada well in both tranquil and turbulent times and
remains the right policy framework to address the current economic
environment of persistently weak inflation, Senior Deputy Governor Tiff
Macklem said today in a lecture at Concordia University's John Molson
School of Business in Montréal.
"Inflation targeting was designed against a backdrop of high inflation,
but its key features of symmetry and flexibility also give us room to
manoeuvre in an environment of disinflation."
Mr. Macklem discussed the various causes of the decline in inflation
since 2012. He said that this disinflation appears to reflect a
combination of "bad" disinflation stemming from a significant and
persistent excess supply in the economy, and "good" disinflation
resulting from heightened competition in the retail sector. In theory,
monetary policy should look through good disinflation as long as
inflation expectations remain anchored, and work to offset bad
disinflation. In practice, there is considerable uncertainty
surrounding our measurement and projections, making monetary policy
more of an exercise in risk management.
"We need to do our best to determine why inflation is below target, but
no matter how hard we try, there will be uncertainty about our
diagnosis," Mr. Macklem said. "Our work at the Bank of Canada is both
to sharpen the analysis as much as we can and, at the same time, to
take account of the risks and uncertainties as we determine the
appropriate course for monetary policy to achieve our inflation
The Senior Deputy Governor highlighted that the floating exchange rate
is a key element of the inflation-targeting framework, allowing for a
made-in-Canada monetary policy and serving as a buffer against shocks
to the economy.
"In light of the recent depreciation of the Canadian dollar, it bears
stressing that the Bank does not have a target for the exchange rate—it
has an inflation target. The exchange rate is determined in markets,
and we neither promote any specific value for the Canadian dollar, nor
thwart its movements."
SOURCE: Bank of Canada
For further information: