Bank of Canada head says inflation target still 'live issue'

Tue Apr 19, 2016 2:10pm EDT
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By Leah Schnurr

OTTAWA (Reuters) - The Bank of Canada is looking closely at what level of inflation it should aim for as it prepares for talks with the government about renewing its mandate, but the bar to change is still high, Governor Stephen Poloz said on Tuesday.

The central bank reviews its inflation targets, which are set jointly with the Canadian government, every five years. The current target is 2 percent, the midpoint of a 1 percent to 3 percent range.

Poloz reiterated during testimony to a parliamentary finance committee that while the threshold for change is high because the inflation target framework is seen to have worked well, it is still a "live issue".

The bank is also looking at what is the right measure of inflation and how to integrate issues of financial stability, he said.

Poloz said the question of the level was "perhaps the most prominent issue", given that many central banks were forced to reduce rates towards zero after the financial crisis, and a higher inflation target would have left them more room to maneuver.

The possibility of negative interest rates, which also gives more room to act than was previously available, also has to be taken into consideration, Poloz said.

"It's that two sides of the coin which need to be assessed," he said.

Poloz said concrete discussions with the finance department should begin in the next month or two.   Continued...

Bank of Canada Governor Stephen Poloz speaks during a news conference in Ottawa, Canada, April 13, 2016. REUTERS/Chris Wattie