(September 8 – 11:30 ET) – The Bank of Canada should adopt a regular schedule for monetary policy announcements says C.D. Howe Institute economist David Laidler.
Laidler says that Finance has contemplated a fixed schedule, although it professes reluctance on the basis that a “schedule that was out of sync with that of the U.S. Federal Reserve might expose the Canadian dollar to fluctuations that would force the Bank to act at other times, undermining its own intentions”.
Laidler argues that the rest of the first world’s central banks have fixed schedules that work just fine. “The important part of this proposal is not that decisions be made, but that they be announced, at regular intervals,” says Laidler.
He argues that a fixed schedule would focus more attention on the economy and less the value of the dollar, giving the bank’s policy more credibility as independent of the Fed. Laidler says that uncertainty about when the bank will change rates allows speculation about whether it maybe asleep at the switch. “The extra transparency that moving to regularly scheduled policy announcements would add to the bank’s communications with financial markets and the public is, in itself, sufficient justification for making it.”
As it is, the bank seems to be shadowing the Fed closer than ever these days, partly because that is what the market has come to expect. “Under current procedures, the more the bank simply follows the Fed’s interest rate changes, whether they are for good or mistaken reasons, the more difficult it becomes for the Bank to ignore the Fed next time around, even when domestic circumstances demand it.”
Laidler argues that the bank needs to break this vicious cycle by adopting a more independent policy communication strategy. He sees a fixed schedule as one way to achieve this by ensuring that the market gets a regular explanation of the bank’s thinking. “A fixed schedule for Bank policy announcements makes good sense,” he concludes.
-IE Staff