By Steve Scherer
OTTAWA (Reuters) – The Bank of Canada is expected to renew its monetary policy framework on Monday, leaving its inflation target unchanged at 2% as concern about the cost of living rises and the COVID-19 outlook remains uncertain.
The central bank and the finance ministry review the inflation target, which expires at year-end, every five years. It has been set at the 2% midpoint of a 1%-3% control range for the last 30 years.
An announcement is due and 10 a.m. EST (1500 GMT) and the bank’s governor, Tiff Macklem, and Finance Minister Chrystia Freeland are speaking to reporters an hour later.
Canada’s policy makers are shunning a major shift in monetary policy strategy similar to the one adopted by the U.S. Federal Reserve last year, a source told Reuters on Thursday, but the renewed framework will include new language on the importance of employment to the economy.
Canada’s inflation rate matched an 18-year high of 4.7% in October, the seventh consecutive month above the bank’s 1%-3% control range. The central bank has taken a flexible approach, allowing jobs and the economy to rebound while supply-chain bottlenecks and rising energy prices pushed up overall costs.
“Governor Macklem … was trying to tie what the bank was doing to labor market outcomes” since the early days of the pandemic, said Andrew Kelvin, chief Canada strategist at TD Securities, adding that introducing language on the importance of jobs will provide “more flexibility down the road.”
The rapid spread of the new Omicron variant of the coronavirus is clouding the economic outlook. Canada said on Friday it has so far recorded 87 cases.
The renewal of the monetary policy framework comes a day before the government is due to update its economic and fiscal forecasts in a fall economic statement.
Prime Minister Justin Trudeau’s government will outline limited new spending in the document, a source told Reuters on Dec. 2, as inflation surges and some business groups and opposition politicians call for restraint.
On Wednesday, Statistics Canada will release November consumer price figures, with an average of 11 analysts surveyed by Reuters forecasting inflation will accelerate to 4.8%.
Macklem will then give his final speech of the year later on Wednesday, after the bank warned on Thursday s increasingly concerned the factors fueling inflation, such as supply chain disruptions, could last longer than expected that it is increasingly concerned the factors fueling inflation, such as supply-chain disruptions, could last longer than expected.
(Reporting by Steve Scherer in Ottawa; Additional reporting by Fergal Smith in Toronto; Editing by Matthew Lewis)
