Mandate update

The Bank of Canada has based its policy decisions on an inflation target since 1991. It looks to keep inflation within a 1-3 percent control range, with a target at the 2 percent midpoint, over time.  Every five years, the Bank and the Government meet to discuss and update this mandate. Today a revised version  was announced, replacing the existing framework which is set to expire at the end of this month. The new mandate will run until the end of 2026.

The most important past of the announcement is that the existing target range will remain the Bank's primary policy goal, with the Government's full approval:   "The Government of Canada and the Bank of Canada believe that the best contribution of monetary policy to the well-being of Canadians is to continue to focus on price stability."    That said, however, it is clear that maintaining employment is now an important and explicit secondary goal for the Bank: "The Government and the Bank also agree that monetary policy should continue to support maximum sustainable employment, recognizing that maximum sustainable employment is not directly measurable and is determined largely by non-monetary factors that can change through time."

The increased emphasis on employment has in effect been telegraphed by the Bank in its recent policy decisions, which have seemed to put greater weight on the uncertain growth outlook than the persistence of above-target inflation. In that sense, it is not obvious that the new mandate will drive any immediate change in the Bank's policy stance. It is interesting to note, however, that what we might call the small print of the new mandate makes several references to the "flexibility" provided by the 1-3 percent range and states that  "The Bank will explain when it is using the flexibility in the framework."  

One wonders if at some time in the next five years, a Finance Minister might be tempted to ask the Bank why it is not using that flexibility. Still, this is a less radical overhaul of the mandate than some analysts might have feared, and the repeated references to the primacy of the inflation target should be reassuring to markets.

Today's announcement marks the start of a busy week for Finance Minister Chrystia Freeland. On Tuesday she switches her focus from monetary policy to fiscal policy, delivering the Government's Fall economic and fiscal update. Stay tuned.