Deputy governor says aging population and productivity are key challenges ahead of the bank's policy renewal next year
When the Bank of Canada renews is monetary policy framework in 2021 it will have several key challenges to consider.
As with many advanced economies, Canada has an aging population and weaker-than-required productivity gains.
The central bank has a weakened ability to influence the economy through interest rate changes too with low rates meaning reduce opportunity to cut in the event of a downturn and the risk of growing vulnerabilities.
Speaking to the Economic Club of Canada, BoC deputy governor Carolyn Wilkins said Wednesday that the bank will need to bolster its framework and toolkit.
“The Bank of Canada already has a strong policy framework that has served us well for nearly three decades,” she said. “The work that we’re undertaking now to renew our inflation-control agreement and tool kit will only make that framework stronger for a world with low neutral interest rates.”
Although trend growth is slower and neutral rates are lower, she said that Canada is not at risk of stagnation due to a population that’s still rising thanks to immigration; a healthy banking system; and the central bank’s long track record of achieving its inflation target, which has kept inflation expectations anchored around 2%.
Beyond monetary policy
However, monetary policy is only a part of the story. For Canada to achieve greater prosperity, there is a need for a consolidated approach to driving growth and living standards for all.
“It’s up to all of us, in public policy and the private sector,” Wilkins said. “It will take decisive, ambitious policies at home and abroad. Yet, the payoff is clear: we’ll be more resilient to the next downturn, and we’ll secure long-term opportunity and prosperity for people in Canada and around the world.”
