Under normal circumstances, the framework surrounding monetary policy and how the Bank of Canada makes its decisions attracts little attention, with the general public more concerned about when interest rates will change than how the decision is made. However, the surge in inflation during the post-pandemic period to levels not seen in decades, and the subsequent rapid increase in interest rates that followed have brought attention to how the BoC conducts monetary policy.
However, just because it isn’t broken doesn’t mean there isn’t room for improvement. Does aiming for two per cent inflation still make sense? Some commentators during the recent inflationary episode questioned whether the target should be higher. However, this suggestion often comes with the view that, had the BoC target been higher, the central bank wouldn’t have needed to increase interest rates so aggressively.