Monetary Policy Objective and Framework
Monetary Policy Objective
The objective of monetary policy is ultimately political, and it stems from the mandate of the Bank, which is set out in the Bank of Canada Act.
Bank of Canada Act is the objective of monetary policy as set out in the preamble to the Bank of Canada Act of 1935 is to regulate credit and currency in the best interests of the economic like of the nation… and to mitigate by its influence fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action.
In other words, the Bank’s job is to control the quantity of money and interest rates in order to avoid inflation and, when possible, prevent excessive swings in real GDP growth and unemployment.
The emphasis on inflation has been made concrete by an agreement between the Bank and the government.
Joint Statement of the Government of Canada and the Bank of Canada
The Government of Canada and the Bank of Canada have agreed that
The inflation-control target range will be 1 to 3 percent a year.
Policy will aim at keeping the trend of inflation at the 2 percent target midpoint.
The agreement will run for five years and ne reviewed before the end of 2011.
A monetary policy strategy in which the central bank commits to an explicit inflation target and to explaining how its actions will achieve that target is called inflation rate targeting.
Interpretation of the