11.1 Goals of Monetary Policy

The Central Bank or the Bank of Canada (BoC) has the following objectives:

1. Price stability: keeping annual inflation rate within 1-3% range
2. Low Unemployment: keeping the official unemployment rate less than 7%
3. Economic Growth: keeping the long-term economic growth rate around 2%

The most important objective of the BoC is to preserve the value of money by keeping inflation low, stable, and predictable. This allows Canadians to make spending and investment decisions more confidently, encourages longer-term investment in Canada’s economy, and contributes to sustained job creation and greater productivity. This, in turn, leads to improvements in our standard of living.

The Inflation Control Target

At the heart of Canada’s monetary policy framework is the inflation-control target, which is two percent, the midpoint of a 1 to 3 percent target range. First introduced in 1991, the target is set jointly by the Bank of Canada and the federal government and reviewed every five years. However, the day-to-day conduct of monetary policy is the responsibility of the Bank’s Governing Council. The inflation-control target guides the Bank’s decisions on the appropriate setting for the policy interest rate, which aims to maintain a stable price environment over the medium term. The Bank announces its policy rate settings on fixed announcement dates eight times yearly.