When central bank decisions are made, they impact all of us. That’s why it’s important to understand the process behind them.
Every year, the Bank makes eight monetary policy decisions—deciding whether to raise, maintain or lower interest rates and implement other monetary policy instruments. Each decision is accompanied by a Monetary Policy Report (MPR), which examines the global and Canadian economies in terms of production, spending, labour markets and, of course, inflation. A summary of deliberations is published online about two weeks after each decision. It provides a record of the process and highlights where opinions converged, as well as the topics that generated the most debate among members.
The goal of a central bank is to promote price stability and maximum employment. They do this independently of the political group in power and strive to act on what economists call a Goldilocks principle: not too hot, not too cold, just right. The MPRs that accompany each decision outline the Bank’s rationale for the decision and a risk assessment that identifies potential downside risks to inflation as well as upside gains.
Central bankers today face many challenges to their independence. Pressures to cut rates to stimulate growth are high, and there’s a growing risk of political interference in personnel appointments. Yet academic research shows that economies with independent central banks are more stable and less volatile. That’s why it’s so important that other branches of government help central banks to achieve their mandated objectives and navigate the hazards ahead. That includes enacting laws proclaiming independence, and it also means implementing prudent fiscal policies that keep debt sustainable so central bankers have more room to operate if needed.