Bank of Canada sees no obvious alternative to inflation targeting

OTTAWA: No obvious front-runner has emerged among monetary policy alternatives to inflation targeting as the Bank of Canada reviews its options ahead of next year's inflation target renewal, the Bank's senior deputy governor said Wednesday.

At the same time, the COVID-19 pandemic has crystallized that central banks are "likely to run out of conventional firepower" to address economic downturns in a low-interest-rate world, Carolyn Wilkins said in opening remarks at a central bank event.

The bank has tried to keep Canada's annual inflation rate at 2% since the early 1990s, a goal that it reviews jointly with the federal government every five years. In the lead up to next year's renewal, the Bank set out to review four alternative frameworks, along with the option of raising the inflation target.

"We've identified some of the strengths and weaknesses of the different frameworks. But at this point, no single framework dominates on all margins," Wilkins said.

The US Federal Reserve conducted a similar review and will now set out to convince the public that higher inflation will be good for them in the long run.

Wilkins remarks follow a speech on Tuesday by Bank of Canada Deputy Governor Lawrence Schembri, who said the economic shock of the coronavirus pandemic will test public confidence in the bank's inflation target.