By Promit Mukherjee
OTTAWA, Aug 26 (Reuters) – The Bank of Canada will not review its inflation target when its monetary policy framework comes up for renewal next year, Governor Tiff Macklem said on Tuesday, saying the current target has helped anchor inflation expectations.
The central bank and the finance ministry jointly review the target every five years and formally announce a decision, with the next review set for 2026.
The BoC, as per its mandate, aims to keep inflation at 2%, the mid-point of its 1%-3% target range, and Macklem said while the bank was asking a number of questions before the review next year, the 2% target will not be considered.
“The 2% target has proven its worth in achieving price stability over time,” Macklem said in a speech at the Bank of Mexico in Mexico City.
“We are already facing a more uncertain and unpredictable world. Now is not the time to question the target,” he said.
It is the first time that the Governor said the 2% target will remain unchanged when the monetary policy framework is renewed.
He, however, said that ahead of the review the BoC is mulling over how the central bank should respond to supply shocks, especially at a time when the Canadian economy was reorienting its supply chain due to the economic uncertainty from U.S. tariffs.
It is also looking at the best ways to measure core inflation in the face of supply shocks, and the interaction between monetary policy, housing affordability and inflation, while taking broad lessons from the pandemic.
The BoC, which has been among the most aggressive of all major central banks to cut rates as inflation stays within its target range since last year, has held rates steady for its last three meetings at 2.75%.
Macklem said in his speech that economic uncertainty stemming from the U.S. tariffs and shifts in supply chains were increasing uncertainty and could put more upward pressure on inflation.
“Headwinds that limit supply could mean more upward pressure on inflation going forward. And more frequent supply shocks could mean more variability in inflation,” he said, adding that while central banks cannot offset the impact of uncertainty, they could tailor decision making to withstand the blow.
(Reporting by Promit Mukherjee)
((promit.mukherjee@thomsonreuters.com;))
Keywords: CANADA CENBANK/
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