THE CONDUCT OF

MONETARY POLICY
AND STRATEGY IN
CANADA

Andrei Jalba, AFB161

 AGEND
A
1. GENERAL INDICATORS.
2. THE AUTHORITY RESPONSIBLE FOR ADMINISTERING
THE MONETARY POLICY.
3. BOARD OF DIRECTORS AND THE GOVERNOR.
4. THE BANKS FOUR MAIN AREAS OF RESPONSIBILITY.
5. THE TYPE OF MONETARY REGIME AND THE TYPE OF
EXCHANGE RATE REGIME.
6. DECISION-MAKING PROCESS.
 Inflation, consumer prices (annual %) vs
Unemployment, total (% of total labor force)

1.12
5%
(201
5)

When unemployment is high, the number of people

willing towork significantly exceeds the number of jobs
available, which means that the supply of labor is greater than
the demand for it. As a result, there is little need for employers
to "bid" for the services of employees by paying higher wages.
In this scenario, wages will remain stagnant and wage
inflation would be literally non-existent.
Now consider the reverse situation where unemployment is
low, which means that the demand for labor (by 6.9%
employers) exceeds supply. In such a tight labor market, (201
employers will not hesitate to offer higher wages to 5)
attract employees, leading to rising wage inflation.
 Inflation, consumer prices (annual %) vs
Domestic credit provided by financial sector
(% of GDP)

A high value of
domestic credit to
1.12
private sector (% of
5%
GDP) is a sign of a
(201
strong economy.
5)

172. The higher this measure is, the

3% higher financial resources or
(201 financing is to private sector in
5) a country and so the greater
opportunity and space for
the private sector to
develop and grow.
The better the private sector
gets and bigger role it has in
national economy , the better
is generally the health and
development of the
Inflation, consumer prices (annual %) vs
Broad money growth (annual %)

Broad money is the

most inclusive
1.12
5% method of
(201 calculating a given
5) country's money
supply. The money
supply is the totality
of assets that
households and
businesses can use
to make payments or
14.9
%
to hold as short-term
(201 investments, such
5) as currency, funds
in bank accounts
and anything of
value resembling
money.
Broad money (% of GDP)

If there is more
money to go around,
the economy tends
122. to accelerate, with
9% businesses having
(201 easy access to
5)
financing. If there is
less money in the
system, the economy
cools off and prices
may drop or stop
rising.
In this context, broad
money is one of the
measures that
central bankers use
to determine what
interventions, if any,
they choose to make
 Real interest rate (
%)

A real interest rate is

an interest rate that has
been adjusted to
remove the effects of
inflationto reflect the
3.3% realcost of fundsto the
(201 borrower and the real
5) yield to thelenderor to
an investor. The real
interest rate of an
investment is calculated
as the amount by which
thenominal interest rate
is higher
than the inflation rate
Real Interest Rate= Nominal Interest Rate- Inflation (Expected or
Actual)
THE AUTHORITY RESPONSIBLE FOR ADMINISTERING THE
MONETARY POLICY
The Bank of Canada is the
nation's central bank. Its
principal role is "to
promote the economic
and financial welfare of
Canada" as defined in the
Bank of Canada Act.
 HISTORY OF BANK OF
CANADA
The Bank of Canada opened its
doors in March 1935, operating
from rented premises in the
Victoria Building on Ottawa's
Wellington Street.
Since the first day, Bank of
Canada had only 8
Governor, with average
mandate of 10 years.

In 2012, the Bank of Canadas Board of Directors approved a plan to

renew our head office after assessments determined that the main
building systems had reached the end of their lifespans. The estimated
construction cost is $460 million. The cost of temporary relocation is
estimated at $150 million, offset by reduced operating costs.
 BOARD OF DIRECTORS AND THE
GOVERNOR
The Board is composed of the Governor, the Senior Deputy
Governor and 12 independent directors appointed to three-
year renewable terms by the Governor in Council (the
Cabinet). The Deputy Minister of Finance is an ex officio
non-voting member of the Board.

Stephen S. Poloz was appointed

Governor of the Bank of Canada,
effective 3 June 2013, for a term of
seven years. As Governor, he is also
Chairman of the Board of Directors of
the Bank and a member of the Board of
Directors of the Bank for International
Settlements (BIS).
 THE BANKS FOUR MAIN AREAS OF
RESPONSIBILITY
Monetary policy:The Bank influences the supply of money
circulating in the economy, using its monetary policy framework to
keep inflation low and stable.
Financial system:The Bank promotes safe, sound and efficient
financial systems, within Canada and internationally, and conducts
transactions in financial markets in support of these objectives.
Currency:The Bank designs, issues and distributes Canadas bank
notes.
Funds Management: The Bank is the "fiscal agent" for the
Government of Canada, managing its public debt programs and
foreign exchange reserves.
 THE TYPE OF MONETARY REGIME
AND THE TYPE OF EXCHANGE RATE
REGIME
The objective of monetary policy is to preserve the
value of money by keeping inflation low, stable and
predictable. This allows Canadians to make spending and
investment decisions with more confidence, encourages
longer-term investment in Canada's economy, and
contributes to sustained job creation and greater
productivity.

Canadas monetary policy framework consists of two

key components that work together: the
inflation-control target and the flexible exchange rate.
 THE INFLATION-CONTROL
TARGET

At the heart of Canadas monetary policy framework is the

inflation-control target, which is two per cent, the midpoint
of a 1 to 3 per cent target range.
First introduced in 1991, the target is reviewed every five years .
However, the day-to-day conduct of monetary policy is the
responsibility of the Banks Governing Council.
The Bank announces its policy rate settings on
fixed announcement dates eight times a year.
Monetary policy actions take time - usually between six and
eight quarters. For this reason, monetary policy is always forward
looking and the policy rate setting is based on the Banks judgment
of where inflation is likely to be in the future, not what it is today.
 CANADAS FLEXIBLE EXCHANGE
RATE

Although there is no target for the Canadian dollar

and the Bank no longer intervenes in foreign
exchange markets except in very exceptional
circumstances, the Bank is not indifferent to persistent
currency movements, up or down, and takes into account
their effect, together with that of other domestic and
external factors, on total demand and inflation in Canada.
By keeping domestic inflation low, stable, and predictable,
the Bank contributes not only to the long-term soundness of
the Canadian dollar, but to the overall health of the
economy.
 TARGET FOR THE
OVERNIGHT RATE

The Bank of Canada

announced on 19 October
2016 that it is
maintaining its target for
the overnight rate at 1/2
per cent. The Bank Rate is
correspondingly 3/4 per cent
and the deposit rate is 1/4
per cent.
The next interest rate
announcement will take
place on 7 December 2016.
 DECISION-MAKING
PROCESS
Before December 2000, the Bank had no fixed or pre-
announced schedule for its interest rate decisions. Instead,
it stood ready to move whenever action was deemed
appropriate.
Businesses, households and market participants never knew
when the Bank was going to move rates.
To avoid problems and make the process more
predictable, the Bank moved to a system of fixed
announcement dates (FADs). The Bank now makes its interest
rate decisions on eight pre-announced dates throughout the
year, with an interval of six to seven weeks between each one.
 A FIVE-STAGE DECISION-
MAKING PROCESS
The monetary policy decision-making process comprises
five key stages:
1.Presentation of the Staff Projection
2.The Major Briefing
3.Final Policy Recommendations
4.Deliberation and Decision
5.Publication and Communication

The Bank places a great deal of importance on communication. It is a

critical part of Banks accountability to Canadians and enhances the
effectiveness of monetary policy by increasing the publics
understanding of the economy and Banks actions.
THANK YOU FOR
ATTENTION!