May 14, 2015 / 7:29 PM / 2 years ago

Bank of Canada says bar for changing inflation target 'extremely high'

Pedestrians are reflected in a window while walking past the Bank of Canada office in Ottawa March 4, 2015. REUTERS/Chris Wattie

VANCOUVER (Reuters) - The bar is “extremely high” for changing the Bank of Canada’s inflation target when it comes up for renewal next year, bank Deputy Governor Lynn Patterson said on Thursday.

The bank, which reviews the target every five years, said last year it was researching whether to raise the target above the current 2 percent given the difficulties of setting monetary policy with interest rates near zero.

“We’re obviously looking at things very seriously in this space,” Patterson said in response to an audience question following a speech. “We have had the current inflation target in place for 20 years and clearly the bar is extremely high for change.”

Patterson said the bank was also looking at other inflation topics, including the right way to measure core inflation. Her comments were similar to those of Governor Stephen Poloz, who noted earlier this year that the bar is high for changing the inflation target.

Economists said this week the central bank is unlikely to raise the target, given the risk to its credibility and the widespread support for the existing benchmark.

Patterson’s comments followed a speech in which she outlined proposed changes to the way the central bank operates in markets, but cautioned operators against reading too much into what she called a fine-tuning operation.

The proposals were released in two consultation papers last week and are open for comments until July.

“No inferences should be drawn from this speech and the proposals in the consultation papers about the current or future stance of monetary policy,” Patterson said in her address, which did not touch on monetary policy.

Among the proposals, Patterson said that reducing the amount of securities the bank purchases at primary bond auctions would amount to an increase of about C$9 billion ($7.5 billion) in the tradable float available across benchmarks, based on 2014 issuance figures.

“Our intent is to enhance liquidity in these benchmark securities and hold fewer of them, leaving more available to other buyers,” she said.

The introduction of term repos would also allow the bank to decrease its presence in the primary market for government debt and would provide insight into liquidity conditions in short-term funding markets, Patterson said.

Writing by Leah Schnurr and David Ljunggren in Ottawa; Editing by Ted Botha; and Peter Galloway

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