Inflation-obsessed central bank could impede Canada’s recovery: report

OTTAWA—The Bank of Canada is not up to the challenges brought on by the world financial crisis, says a new report by the Canadian Centre for Policy Alternatives.

According to the report, the central bank’s new initiatives to deal with the crisis—such as a prolonged near-zero interest rate policy and so-called quantitative easing measures—have not been sufficient.

The report is also critical of the Bank’s approach of focusing solely on a target of 2% inflation, saying it is far too rigid and could hurt our economic progress particularly in the current volatile times.

“Even now our central bank continues to be focused on controlling inflation—as defined by consumer prices—as its primary policy objective, ignoring the inflation of asset prices and the dire effects that asset price bubbles have on the economy,” says co-author Doug Peters, former Secretary of State (Finance) and former TD Bank Chief Economist.

The report asserts that the Bank’s role should be broadened to deal with asset bubbles, beyond merely consumer price inflation targets.It also calls on the central bank to broaden its role to include employment and economic growth along with inflation as near-term priorities.

“For example, though the Bank is now talking about lowering the Canadian dollar exchange rate, its rationale is still to affect Canada’s inflation rate,” says co-author and economic consultant Arthur Donner. “A much more important objective of a lower valued dollar would be to stimulate growth in the economy and reduce the already high rate of unemployment.”

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Report Title is available on the CCPA website: http://policyalternatives.ca

For more information contact Kerri-Anne Finn, CCPA Senior Communications Officer, at 613-563-1341