C.D. Howe Institute's Monetary Policy Council Calls for Bank of Canada to Lower its Benchmark Interest Rate

TORONTO - The C.D. Howe Institute's Monetary Policy Council (MPC) recommended that the Bank of Canada lower the overnight interest rate at its next announcement on April 21, 2009. The overnight rate is a very short-term money-market rate that the central bank targets for monetary policy purposes.

The MPC is a panel sponsored by the C.D. Howe Institute to provide an independent assessment of the monetary stance most appropriate for the Bank of Canada as it seeks to achieve its 2 percent inflation target. William Robson, the Institute's President and CEO, chairs the Council.

The MPC's formal recommendation is its median vote, which on this occasion was for a target overnight rate of 0.25 percent. Six of the 10 members attending the meeting recommended cutting the rate to 0.25 percent, while four favoured a rate of 0.50 percent.

With the recommended overnight rate so low, the group felt some modification of the Bank of Canada's normal approach of setting an "operating band" 0.25 percentage points either side of the target was in order. Some members favouring a 0.50 percent rate said that they felt that the Bank of Canada should hold the rate at or below that level. Critically, members favouring a 0.25 percent rate felt that the Bank of Canada should not let the bottom of the band - the rate at which it pays interest on settlement balances - go to zero, and therefore argued that the band around the target should shrink, perhaps to 0.125 percentage points.

For the announcement go to:
http://www.cdhowe.org/display.cfm?page=monetaryReleases