(Sherbrooke) A senior Bank of Canada official says the central bank must be rigorous and transparent in order to maintain public confidence.
In a speech in Sherbrooke, Nicolas Vincent, the bank’s external deputy governor and a professor at HEC Montréal, said that communicating the reasons for the bank’s interest rate decisions is almost as important as the decision-making process itself.
He said the message was misunderstood when the bank cut its benchmark interest rate in July, saying downside risks to inflation were taking a greater place in the board’s deliberations.
Some understood the bank to believe that downside risks had increased. Mr. Vincent explained that the bank was instead trying to convey that with the 2% target in sight, it was paying more attention to the risk that inflation could fall below that mark.
Mr Vincent said the differences in interpretation can be very subtle, making the choice of words used by the central bank all the more important.
The Bank of Canada lowered its key interest rate earlier this month for the third time this year to 4.25%.