G20-Bank of Canada: high bar to change inflation targeting

Tue Feb 10, 2015 9:40am EST
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By Randall Palmer

ISTANBUL Feb 10 (Reuters) - Compelling arguments will be required to cause the Bank of Canada to target something other than inflation, Governor Stephen Poloz said on Tuesday, also citing reasons not to lower the 2 percent target level.

The government and the Bank of Canada will have to decide by the end of next year whether to renew the five-year agreement requiring the central bank to pursue 2 percent inflation.

Poloz told Reuters and another news outlet that inflation targeting had been an obvious success in the past quarter century.

"It's proven itself, when you consider the previous 25 years, how hard it was to do policy and...the superior outcomes that we've had," Poloz said during a break in meetings of the Group of 20 leading economies.

"So that means it's a pretty high bar to change that and replace it with something else."

As for a possible cut to the level of the target, he said central bank thinking on that had been influenced by the limited room for maneuver even at the 2 percent level, let alone if it were lower.

"What makes it more relevant this time is the experience that we have had," he said.

He referred to the fact that the Bank of Canada and other central banks hit the "zero lower bound" in the recent financial crisis, where they were effectively unable to cut interest rates further in order to provide needed stimulus.   Continued...