Bank of Canada hints at future housing policy

The Governor of the Bank of Canada hinted at future macroprudential policy in a telling speech Tuesday.

Governor Stephen Poloz said the Bank of Canada is more likely to target household and housing vulnerabilities through macroprudential policies as opposed to interest rate tampering.
“Our view is that these so-called macroprudential policies are best placed to deal with threats to financial stability because they can be designed to target specific financial vulnerabilities. In contrast, adjusting interest rates is a very blunt tool with widespread effects,” Poloz said. “Given all the work done to strengthen the global financial system over the past few years, it makes even more sense to separate monetary policy from efforts to stabilize the financial system.”
The Bank of Canada has slashed its target for the overnight rate twice since January of last year, largely in response to falling oil prices. Rate cuts have an impact on mortgage rates, as the country’s variable rates are closely tied to the central bank’s benchmark.

However, rate adjustments also impact the economy as a whole and, with that in mind, the Bank has iterated its strategy of preferring policy.

“… at the Bank of Canada, we take a risk-management approach to monetary policy. We acknowledge that there is always uncertainty around the outlook for inflation, and developments in the financial system bring uncertainties for financial stability,” Poloz said. “These uncertainties generate a zone within which we can tolerate variations in either the risks to our inflation outlook or risks to financial stability.

“Because there are many possible paths for monetary policy that can lead us to our inflation target, and because we have flexibility around the time it takes to hit the target, we can use monetary policy to manage those risks, while still keeping the pursuit of our inflation target as our main priority.”

Source:http://m.repmag.ca/news/

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