External Deputy Governor Nicolas Vincent provided an inside look at how the Bank of Canada’s Governing Council reaches its monetary policy decisions. Speaking to the Chambre de commerce et industrie de Sherbrooke, Vincent detailed the comprehensive process undertaken by the council.
Eight times annually, the Governing Council determines whether to adjust the policy interest rate, a key instrument for maintaining low and stable inflation. These decisions impact households and businesses significantly and are made with considerable deliberation.
Approximately one month before each decision is announced, the council begins gathering and analyzing information. While economic data play a crucial role, they have limitations as they are retrospective and do not capture the diverse experiences of Canadians. Consequently, the council also considers data from consumer and business surveys as well as insights from meetings with businesses and community groups across Canada.
A week prior to making a decision, the council convenes with advisors to discuss various options. Each advisor presents their recommendation along with their rationale, after which it is up to the council to decide.
The Bank of Canada makes these decisions independently to shield its work from short-term political objectives and external pressures. This independence is particularly vital during challenging periods, such as recent efforts to reduce inflation to the Bank’s 2% target.
When it is time for a decision, Governing Council members meet privately in a secure room chaired by the Governor. Each member shares their perspectives on growth and inflation domestically and internationally. Following this discussion, opinions on monetary policy are debated until a consensus is reached. Despite differing initial views due to varied expertise among members, consensus ensures stronger and more informed decision-making.
Vincent noted that discussions often lead members to reassess or refine their interpretations of data based on points raised by colleagues.
Communicating these decisions to Canadians in both official languages is nearly as crucial as making them. The Governing Council collaborates with the Bank’s communications team to prepare press releases and other explanatory materials. The Governor and Senior Deputy Governor hold press conferences and give media interviews while other members conduct information sessions for stakeholders.
Since January 2023, the Bank has published summaries of deliberations two weeks after each decision. These summaries document the council’s views on economic conditions, risks to inflation outlooks, and considerations influencing their decisions.
“To maintain public trust,” Vincent emphasized, “we must be rigorous, professional, humble, honest and transparent.”