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Essentials of Monetary Policy

Bank of Canada (BoC). Monetary Authorities Concerned over the Recent Slowdown

January 22, 2020
François Dupuis • Mathieu D’Anjou • Benoit P. Durocher • Hendrix Vachon

The key to how monetary policy will evolve in the coming months will be the temporary aspect of the difficulties noted at the end of 2019. Today, the BoC indicated that it could cut its key interest rates if these difficulties were to persist or even worsen. However, this kind of action will not be needed, in our opinion. For one thing, our scenario includes a rebound in the Canadian economy in early 2020. For another, despite everything, the monetary authorities will be hesitant to lower key interest rates while households’ financial vulnerability remains an issue and there are questions about certain inflationary pressures, such as the recent acceleration in wage growth. The target for the overnight rate should therefore stay at 1.75% throughout 2020.