The old bank and the Red Sea: Bank of Canada must address threat of geopolitics – Globe and Mail
The Bank of Canada again held its target for the overnight rate at 5 per cent on Wednesday, as expected.
The clamoring had begun for the bank to consider dropping rates in hopes that inflation is headed back to 2 per cent. However, the latest numbers (for December) disappointed, with headline inflation ticking back up to 3.4 per cent (from 3.1 per cent), and core measures flat or, in the case of CPI-Trim, slightly higher. On Wednesday, the bank stressed upside risks to inflation coming from greater-than-expected persistence.
However, the announcement did not mention geopolitical risks, particularly the effect of the disruption of maritime traffic in the Red Sea, its impact on shipping costs, and the knock-on effects on…
C.D. Howe Institute Monetary Policy Council Calls for Bank of Canada to Hold Overnight Rate at 5.00 Percent through March, Cut to 3.75 Percent by January of 2025
January 18, 2024 – The C.D. Howe Institute’s Monetary Policy Council (MPC) recommends that the Bank of Canada maintain its target for the overnight rate, its benchmark policy interest rate, at 5.00 percent at its next announcement on January 24th. The MPC further recommends that the Bank keep the target at 5.00 percent in March, before reducing it to 4.50 percent by July and to 3.75 percent by January of 2025.
The MPC provides an independent assessment of the monetary stance consistent with the Bank of Canada’s 2 percent inflation target. William Robson, the Institute’s CEO, chairs the Council. Council members make recommendations for the Bank of Canada’s upcoming interest-rate announcement, the subsequent…
Paul R. Masson – Goldilocks Interest Rates Needed to Help Housing Affordability
From: Paul R. Masson To: Canadian housing watchers Date: January 15, 2024 Re: Goldilocks interest rates needed to help housing affordability In the current debate about how to make housing affordable in Canada, there is a curious omission: The role of monetary policy, which was excessively loose in creating the problem and can be more responsibly applied to solve it. […] Lester, Laurin – The Federal Debt is Not Sustainable
To: Canada’s budget observers From: John Lester and Alexandre Laurin Date: January 5, 2024 Re: The Federal Debt is Not Sustainable The recent Fall Economic Statement (FES) contains a familiar rosy assessment of federal debt sustainability. It shows the ratio of debt to GDP declining continuously over 30 years starting in the second year of the medium-term forecast, […] Ambler, Kronick – Inflation Targeting Ain’t Broke So Let’s Not Fix It
From: Steve Ambler and Jeremy M. Kronick To: Canadians Worried About Inflation Date: January 4, 2024 Re: Inflation targeting ain’t broke so let’s not fix it Despite disappointment in the performance of many central banks, let’s not lose sight of key lessons. First, inflation stinks, inflicting most harm on those who can afford it least. Second, central banks […] Angelo Nikolakakis – Here’s How Ottawa’s Financial Institution Tax Will Really Work
From: Angelo Nikolakakis To: Finance Minister Chrystia Freeland Date: January 2, 2024 Re: Here’s How Ottawa’s Financial Institution Tax Will Really Work Tucked into November’s 500-page Notice of Ways and Means motion is an unwise measure that urgently needs to be withdrawn. First announced as part of Budget 2023, it imposes an additional $3 billion of federal income tax on “financial institutions” over […] Inflation targeting ain’t broke so let’s not fix it – Financial Post
The last two years have not been kind to central banks. Inflation in many countries soared far beyond target, reaching levels not seen in decades. Central bankers have responded with necessary but painful interest rate hikes.
Despite disappointment in the performance of many central banks, let’s not lose sight of key lessons. First, inflation stinks, inflicting most harm on those who can afford it least. Second, central banks are the best institutions we have to make sure it goes away and doesn’t come back. As we head into 2024 and inflation continues to fall, it’s worth remembering why the world established central banks and low inflation targets in the first place.
Until the 1990s, central banks struggled…
The Need for Speed: The Benefits of Faster Payments and How to Achieve Them
In this study, we estimate the efficiency gains associated with the introduction of the Real-Time Rail (RTR), Fast Payment System (FPS) in Canada. In a benchmark scenario, we estimate that these gains will amount to $3.24 billion over the first five years after introduction of the system. These gains will arise mainly from: 1) the […] Let it Fail? Reflections on the SVB Collapse and the US and Canadian Approaches to Bank Crises
 Despite having highly similar economies, in banking the experience of the crisis-prone United States contrasts starkly with Canada’s stability. For each major US crisis, different reasons have been put forward to explain Canada’s comparative stability in the face of broadly similar shocks, an issue that arose again in the context of the failure of […] Despite the Bank of Canada’s continued tough talk, rate cuts are coming – Globe and Mail
The Bank of Canada surprised no one by holding its target for the overnight lending rate at 5 per cent on Wednesday. Last week’s releases by Statistics Canada showing a decline in third-quarter GDP and an uptick in the unemployment rate sealed the deal.
Nevertheless, the announcement made it clear that the bank is not satisfied with the pace at which inflation is falling, stressed that the fight against inflation is not yet won, and stated that they stand ready to boost rates again if inflation numbers disappoint.
It’s clear that the bank is concerned about inflation expectations becoming de-anchored from the 2-per-cent target. They continue to prioritize re-establishing any…
C.D. Howe Institute Monetary Policy Council to Bank of Canada: Hold Overnight Rate at 5.00 Percent until January, Cut to 4.00 Percent by End of 2024
November 30, 2023 – The C.D. Howe Institute’s Monetary Policy Council (MPC) recommends that the Bank of Canada maintain its target for the overnight rate, its benchmark policy interest rate, at 5.00 percent at its next announcement on December 6th. The MPC further recommends that the Bank keep the target at 5.00 percent in January 2024, before reducing it to 4.75 percent by June of 2024 and to 4.00 percent by December of 2024.
The MPC provides an independent assessment of the monetary stance consistent with the Bank of Canada’s 2 percent inflation target. William Robson, the Institute’s CEO, chairs the Council. Council members make recommendations for the Bank of Canada’s upcoming interest-rate announcement, the…
November 15, 2023: Domestic Stability Buffer Council Recommends Holding Buffer at 3.5 Percent at Inaugural Meeting
At its inaugural meeting, the C.D. Howe Institute’s Domestic Stability Buffer Council (DSBC) recommended that the Office of the Superintendent of Financial Institutions (OSFI) maintain its Domestic Stability Buffer (DSB) at 3.5 percent at its next setting in December.
The DSBC provides OSFI, industry participants, and key economic policy voices with an independent assessment of the appropriate size of the buffer in pursuit of OSFI’s mandate of contributing to public confidence in the Canadian financial system. The Council consists of Vivian Abdelmessih, Cathy Cranston, Jamey Hubbs, Peter Levitt, Duncan Munn, Mark Zelmer, and Jeremy Kronick who is Chair. Council members make recommendations for OSFI’s upcoming DSB…