Category: Economic

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On Thursday, 8 December 2016, the Minister of Finance and the Governor of the Bank of Canada will reveal which iconic Canadian woman will be featured on the next regularly circulating bank note, expected in 2018.

In advance of that announcement, the Bank today published the short list from which the #bankNOTEable woman will be chosen.

An independent Advisory Council short-listed these five iconic Canadian women earlier this year for consideration by the Minister of Finance.

They are (in alphabetical order):

The women were selected from 461 eligible nominees submitted by Canadians during an open call for nominations, launched by Prime Minister Justin Trudeau on International Women’s Day, 8 March 2016.

More than 26,300 submissions were received from Canadians over a five-week period. The Advisory Council initially reduced these nominations to a long list of 12 women, guided by the following principles: Canada is comprised of many different communities; the women who appear on the long list should resonate with Canadians and reflect the diversity of Canada; and their achievements must be seen in the context of the time in which they lived.

In compiling their short list, Advisory Council members agreed that these five women best articulated the Council’s ultimate selection criteria: that nominees should have broken or overcome barriers, made a significant change, left a lasting legacy, and be inspirational.

“The Advisory Council had the difficult task of selecting only five outstanding Canadian women from a vast field of strong choices, and I commend the members for their excellent work,” said Governor Stephen S. Poloz. “I am also delighted that this entire process encouraged a meaningful conversation among Canadians about the many exceptional women who have shaped our country.”

“Canadian women made our country what it is today, and they deserve a place on our currency,” said Minister of Finance Bill Morneau. “Thanks to the work of the Council members and to the thousands who participated in the conversation, a new generation of young women and girls will be inspired by the stories of those who contributed so much to our society, our values and our history. And, in 2018, we will all have a constant reminder of these exceptional accomplishments to carry around with us wherever we go.”

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The renewal of the Bank of Canada’s framework for inflation targeting will help Canadian businesses and consumers by providing certainty around their financial plans, Governor Stephen S. Poloz said today.

In a speech to the Business Council of British Columbia, Governor Poloz said the Bank’s inflation-targeting agreement with the federal government, which has been in place for 25 years and which was renewed last week, has helped Canadians spend and invest with more confidence and improved their standard of living.

“Twenty-five is the silver anniversary, but inflation targeting has truly been golden,” Governor Poloz said. “As an approach to monetary policy, inflation targeting has proven its worth repeatedly, both in good economic times as well as turbulent ones.”

Governor Poloz recalled the high and variable inflation of the 1970s and 1980s that led to Canada adopting inflation targets in 1991. That inflation took a tremendous toll on the economy, Poloz said, with the uncertainty making it more difficult for businesses to plan and rising prices eroding the purchasing power of Canadians.

The certainty provided by the policy framework has led to stronger economic performance in many dimensions, the Governor noted. Because the government explicitly agrees with the Bank’s goal of low, stable and predictable inflation, the framework is that much more credible and effective, he said.

In its extensive research leading up to the renewal, the Bank looked at a number of issues, including the potential benefits of a higher inflation target, given the experience of the global financial crisis and its aftermath. It concluded that there would be more costs than benefits to raising the target. In addition, the Bank looked at ways of incorporating financial stability risk into the conduct of monetary policy. It concluded that macroprudential policies are best for addressing financial stability concerns, leaving monetary policy to focus primarily on the inflation target. The inflation-targeting agreement with the government means that all economic policies—including monetary, fiscal and macroprudential—can work together in a complementary fashion, said Governor Poloz.

“The renewal of the inflation-targeting agreement sets us up to extend this track record of success for another five years,” the Governor said. “We will continue to observe and learn, ask questions, and make sure our monetary policy is truly doing its best until the next renewal in 2021.”

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The primary objective of Canada’s monetary policy is to promote the economic and financial welfare of Canadians by contributing to sustained economic growth, rising levels of employment and improved living standards. Experience has clearly shown that the best way monetary policy can achieve this goal is by maintaining a low and stable inflation environment, which preserves confidence in the value of money.

Twenty-five years ago, in 1991, Canada adopted an inflation-targeting framework to guide its monetary policy. During this time, Consumer Price Index (CPI) inflation has been reduced and maintained at a level of close to 2 per cent, with no persistent episodes of inflation outside of the 1-to-3 per cent inflation-control range. Real output has expanded at an average rate of close to 2 1/2 per cent per year and the performance of the labour market has been better. In addition, there has been much lower volatility in inflation, real GDP growth, the unemployment rate, and interest rates.

This improved macroeconomic performance has been fostered by the joint commitment of the Government of Canada and the Bank of Canada to the inflation target, which has helped to anchor inflation expectations and provided a more stable economic environment in which Canadians can plan their investment and spending decisions.

Over the past decade, the global economy has undergone significant economic and financial shocks. Monetary authorities have dramatically extended the limits of their policy toolkits to combat persistent weakness, guard against deflation, repair financial system functioning, and restore confidence. Given such challenges, monetary policy frameworks have themselves come under intense scrutiny.

Throughout this period, the Bank of Canada’s flexible inflation targeting framework has continued to demonstrate its value. The well-established credibility of this framework has reinforced the Canadian public’s confidence that monetary policy will continue to achieve the inflation target, and helped underpin the Canadian economy through challenging times. These benefits continue to be evident in the wake of the global commodity price shock, enabling monetary policy to support the complex adjustment in the Canadian economy while maintaining overall price stability.

Based on this experience, the Government of Canada and the Bank of Canada agree to renew the inflation target on the following basis:

• The target will continue to be defined in terms of the 12-month rate of change in the total CPI.

• The inflation target will continue to be the 2 per cent mid-point of the 1 to 3 per cent inflation-control range.

• The agreement will run for another five-year period, ending 31 December 2021.

The Bank will continue its research into potential improvements in the monetary policy framework. Before the end of 2021, the Government and the Bank will review the experience over the five-year period, as well as any research insights, and determine the appropriate framework for the years ahead.

The commitment by the Government and the Bank to this inflation-control target will ensure that Canadians continue to derive the economic and social benefits from low, stable and predictable inflation and underpin confidence in Canada’s economic prospects in the coming years.

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The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.

The global economy is expected to regain momentum in the second half of this year and through 2017 and 2018. After a weak first half, the US economy in particular is strengthening: solid consumption is being underpinned by strong employment growth and robust consumer confidence. However, because of elevated uncertainty, US business investment is on a lower track than expected.

Looking through the choppiness of recent data, the profile for growth in Canada is now lower than projected in July’s Monetary Policy Report (MPR). This is due in large part to slower near-term housing resale activity and a lower trajectory for exports. The federal government’s new measures to promote stability in Canada’s housing market are likely to restrain residential investment while dampening household vulnerabilities. Recent export data are improving but are not strong enough to make up for ground lost during the first half of 2016, despite the effects of the Canadian dollar’s past depreciation. Growth in exports over 2017 and 2018 are projected to be slower than previously forecast, due to lower estimates of global demand, a composition of US growth that appears less favourable to Canadian exports, and ongoing competitiveness challenges for Canadian firms.

After incorporating these weaker elements, Canada’s economy is still expected to grow at a rate above potential starting in the second half of 2016, supported by accommodative monetary and financial conditions and federal fiscal measures. As the economy continues to adjust to the oil price shock, investment in the energy sector appears to be bottoming out. Non-resource activity is growing solidly, particularly in the services sector. Household spending continues to rise, along with employment and incomes outside of energy-intensive regions. The Bank expects Canada’s real GDP to grow by 1.1 per cent in 2016 and about 2 per cent in both 2017 and 2018. This projection implies that the economy returns to full capacity around mid-2018, materially later than the Bank had anticipated in July.

Measures of core inflation remain close to 2 per cent as the effects of past exchange rate depreciation and excess capacity continue to offset each other. Total CPI inflation is tracking slightly below expectations because of temporary weakness in prices for gasoline, food, and telecommunications. The Bank expects total CPI inflation to be close to 2 per cent from early 2017 onwards, when these temporary factors will have dissipated, but downward pressure on inflation will continue while economic slack persists.

Given the downward revision to the growth profile and the later closing of the output gap, the Bank considers the risks around its updated inflation outlook to be roughly balanced, albeit in a context of heightened uncertainty. Meanwhile, the new housing measures should mitigate risks to the financial system over time. At present, the Bank’s Governing Council judges that the overall balance of risks is still in the zone for which the current stance of monetary policy is appropriate, and the target for the overnight rate remains at 1/2 per cent.

Information note

The next scheduled date for announcing the overnight rate target is 7 December 2016. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 18 January 2017.

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