The Bank of Canada needs to end its fixation on inflation
At the end of 2021, the federal government added the goal of “maximum sustainable employment” to the Bank of Canada’s mandate. But over the past year, the central bank has undermined the job prospects of working, precariously employed and unemployed Canadians by hiking borrowing costs at every scheduled interest-rate announcement since March, 2022.
Since 1993, the Bank of Canada’s mandate has been to target a 2-per-cent inflation rate. In theory, the central bank was committed to raising interest rates to limit borrowing, spending, investment and ultimately employment as much as needed to pull inflation down. But in practice, rate hikes to constrain domestic demand during the 1990s were offset by expanding export demand at the time – a matter outside of the Bank of Canada’s control.
The federal government wisely recognized this trade-off by adding employment to the central bank’s mandate in 2021. That moved the Bank of Canada a step closer to the U.S. Federal Reserve and the Reserve Banks of Australia and New Zealand, all of which have dual mandates to both control inflation and promote employment.
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