Prime Minister Justin Trudeau’s government announced on Monday that it will renew the Bank of Canada’s 2 per cent inflation target, while adding language that will give the central bank more flexibility to overshoot the target in order to achieve employment objectives. 

Here are some reactions from economists and analysts:

  • Doug Porter, chief economist at the Bank of Montreal, by email: “The very heavy emphasis on employment was notable, as was the sense that low-for-long will sometimes be needed to meet goals. Overall, it struck us as a tad more dovish than generally expected.”


  • Jimmy Jean, chief economist at Desjardins Securities Inc., by email: “It adds a bit of a concreteness to the idea of leaning on favoring max employment, especially the option to adjust the 1-3 per cent range as warranted. But I’m expecting these adjustments to be fairly rare and perhaps more likely in a context where we’re recovering from a real recession.”


  • Jean-Francois Perrault, chief economist at Bank of Nova Scotia, by email: “I do think an explicit call out to maximum sustainable employment goes beyond the informal approach of the past in part because it will be very difficult to conclude that we are at that maximum level at any given point in time. It also risks making things awkward between the Bank of Canada and the government.”

What Bloomberg Economics Says...
“Over the short term, the renewal points to a patient approach to tightening, much like the framework change the Federal Reserve made in 2020. However, patience is not unlimited, and it would be a mistake to think recent inflation rates near 5 per cent represent what the BoC will tolerate in search of better job-market outcomes”
-- Andrew Husby, economist

  • Sri Thanabalasingam, senior economist at Toronto-Dominion Bank, by email: “I thought it was mostly a continuation of the current framework from a Bank of Canada perspective. The consideration of labor market indicators and the use of the inflation target range are things the bank was already incorporating in its policy making. Today, we saw a confirmation of that in writing. That said, by explicitly having labor market considerations in the mandate, it may result in more accommodative monetary policy in the future.”


  • Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, by email: “It’s clear that the inflation target takes priority over other considerations, and that while the mandate has some flexibility, that is only within the constraints of keeping inflation expectations grounded at 2 per cent. The new language will not have any material impact on decisions in 2022, since the economy has actually made better progress on employment than it has on GDP, and has already had an extended ‘low for long’ period in monetary policy to ensure that it is truly lifting off before the first hikes come.”


  • Simon Deeley, director of Canada rates strategy at RBC Dominion Securities Inc., in a report to investors: “While we agree that the BoC has had -- and used -- the flexibility in its framework in the past, the changes are nevertheless important. The lower-for-longer component hints at average inflation targeting and the specific employment considerations in certain situations incorporates elements of a dual mandate. Indeed, the BoC notes in the full renewal piece that it is adding the positive elements of both policies, while avoiding the negative aspects by emphasizing the inflation target -- and anchored inflation expectations -- as the over-arching objective.”


  • Josh Nye, an economist at Royal Bank of Canada, by email: “It seems pretty much as expected an in line with your reporting from last week. The decision to maintain a 2 per cent midpoint inflation target within the 1-3 per cent control band is status quo, and the language around maximum sustainable employment (as what I would call a secondary objective) is largely as expected.”


  • Stephen Gordon, economics professor at Universite Laval, by Twitter: “Gotta admit I don’t like the fact that that we all think the BoC mandate is something that requires interpreting.”