A senior Bank of Canada official says the central bank must be rigorous and transparent in order to maintain the public’s trust.
In a speech in Sherbrooke, Que., explaining the bank’s rate-setting process, Nicolas Vincent, the bank’s external deputy governor and a professor at HEC Montreal, says communicating how it comes to its interest rate decisions is almost as important as the decision process itself.
He says when the bank cut its key interest rate in July, it said that downside risks to inflation were becoming increasingly important in the deliberations by the governing council, but the message was misunderstood.
Some interpreted it to mean that the bank believed downside risks had strengthened, but he says the bank intended to convey that with the two per cent target in sight, it gave increased consideration to the risk that inflation could fall below the mark.
Vincent says the differences in interpretation can be very subtle, which makes choosing the right words all the more important.
The Bank of Canada cut its key interest rate earlier this month for the third time this year to bring it to 4.25 per cent.
This report by The Canadian Press was first published Sept. 19, 2024.