BOC's Schembri: Might Need More Policy Coordination With Gov>

By Courtney Tower

     OTTAWA (MNI) - The Bank of Canada, reviewing its policy framework 

before renewal of its mandate agreement with the federal government in 

2021, continues to believe that targeting inflation is its best tool, 

Deputy Governor Lawrence Schembri said Thursday. 

     Laying out the 27-year experience of operating national monetary 

policy with a 2% inflation target, Schembri said having inflation 

control as the central bank's one mandate remains the best contribution 

it can make to the Canadian economy. 

     --COORDINATE POLICIES

     However, Schembri said in a speech prepared for the Manitoba 

Association for Business Economists, in Winnipeg, Manitoba, that more 

coordination - with fiscal and macroprudential policies - might be 

needed more frequently in the future. 

     More explicitly tieing policies of the federal government with the 

autonomous work of the Bank of Canada "would raise governance issues" 

for the BOC and the government, Schembri conceded, but he suggested some 

kind of open coordinating mechanisms are being considered. 

     The Schembri speech is the first of a series by Bank of Canada 

senior officials publicly reviewing BOC policies and actions within the 

Canadian economic context, before the 2021 renewal. 

     --HIGH DEBT 

     OSchembri noted that for the 2021 renewal of its mandate with the 

federal government, a key issue will be the high household and public 

debt levels. He said the first was due to ultra-low levels of interest 

rates, a monetary policy concern, and high government debt, "largely a 

legacy of stimulus policies." Now, he said, "there is less space, on 

average, across the G7, for more borrowing to stimulate demand." 

     Secondly, there has been a 25-year decline in interest rates, 

including long-term bond yields, and estimates of the neutral interest 

rate. "This reduces the scope of central banks to adjust their policy 

rate," he said.            

     --GROWTH TREND FALLING 

     Thirdly, the trend rate of economic growth is decreasing because of 

lower labor force growth and declining labor productivity growth. 

     "The underlying growth in the economy is expected to remain low or 

to slow further. Therefore, "policy might have to be more aggressive to 

boost confidence and increase demand." 

     While monetary policy and inflation control is effective because it 

is flexible and credible, "it may need support from other policies more 

frequently in the future," to deal with these trends, Schembri said. 

     Overall, he said, the BOC policy framework continues to work 

"well."    

--MNI Ottawa Bureau; yali.ndiaye@marketnews.com

                         ** MNI OTTAWA ** 

[TOPICS: M$C$$$,MACDS$]