MONTRÉAL, Dec. 12, 2013 /CNW/ - The financial crisis and the
considerable uncertainty that has ensued are leading to a progressive
redefinition of central banking, Bank of Canada Governor Stephen S.
Poloz said today in a speech to the Canadian Club of Montréal.
"We assess how risks could interact with each other. We gauge their
potential impact. And we use judgment to determine the balance among
them, both today and in prospect. In fact, monetary policy formulation
these days is more a process of risk management than one of precision
The Bank looks at risks through two lenses: (i) the possible impact on
the outlook for real economic activity and inflation and (ii) the
possible impact on the stability of the financial system. While it
examines them from different perspectives, the Bank takes into
consideration the interplay between them, the Governor said.
The Bank's current monetary policy balances the risk that household
imbalances could grow against the risk that inflation could drift even
further below target, the Governor noted. "This zone of balance is
relevant today and in prospect, as we expect both risks to diminish
over the next two years or so."
Governor Poloz underscored how the recent financial crisis proved that
financial stability is a necessary condition for low and stable
inflation. He attributed the Bank's ability to conduct monetary policy
in an environment of slow economic growth and financial stability risks
to its flexible inflation-targeting framework and the credibility that
the Bank has earned through years of sound policy.
"By using credibility to exercise the framework's flexibility, we are
working to maintain stable financial conditions that will support the
expansion of capacity and return the economy to its full potential."
SOURCE: Bank of Canada
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