OTTAWA?The Bank of Canada seriously considered raising its inflation target during a recent policy review before concluding that higher consumer price increases would be too costly for the economy, Governor Stephen Poloz said.
In prepared remarks for a speech to the Business Council of British Columbia on Tuesday, Mr. Poloz said a higher inflation target would generally result in higher interest rates, giving the central bank more room to cut rates in the future. Ultralow and negative interest rates in many developed countries have limited central bankers' options for stimulating the economy by lowering interest rates.
"However, we have learned from recent experience that there are unconventional monetary policies that giveus more room to maneuver than previously believed," Mr. Poloz said, according to the text of his remarks. "These include pushing interest rates below zero or buying longer-term bonds to compress long-term yields."
The Bank of Canada announced last week that it would maintain its inflation target at the current 2% level for the next five years, but change the way it measures core inflation. The decision was part of a regular renewal of the central bank's inflation-control agreement with the Canadian government.
Mr. Poloz said a higher inflation target would be costly for the economy, which he likened to "paying dearly, every day, for insurance against the low-probability risk" of another significant economic shock. Pushing inflation up to 3% might also be difficult to do, he said, given how accustomed Canadians have become to the current 2% level.
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(END) Dow Jones Newswires
November 01, 2016 12:35 ET (16:35 GMT)
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