External Deputy Governor Stresses Importance of Bank of Canada Transparency for Maintaining Trust
A senior Bank of Canada official emphasizes the importance of being rigorous and transparent to maintain the public’s trust.
During a speech in Sherbrooke, Que., Nicolas Vincent, the bank’s external deputy governor and a professor at HEC Montreal, discussed the bank’s rate-setting process, highlighting that communication about interest rate decisions is crucial for transparency.
When the bank reduced its key interest rate in July, it noted that downside risks to inflation were increasingly significant in the deliberations by the governing council; however, this message was misinterpreted by some.
According to Vincent, in prepared remarks on Thursday: “Some people interpreted this to mean that we believed downside risks had strengthened. What we intended to communicate, however, was that, with the two-per-cent target in sight, we gave increased consideration to the risk that inflation could fall below the target.”
He stressed that the subtle differences in interpretation underscore the importance of selecting the right words.
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The Bank of Canada reduced its key interest rate earlier this month for the third time in 2022, bringing it to 4.25 percent.
Unlike other central banks such as the U.S. Federal Reserve and Bank of England where members vote, the Bank of Canada’s governing council makes its interest rate decisions by consensus.
Vincent noted that it is normal for members of the Bank of Canada’s governing council to have differing opinions, but the diversity of experience helps facilitate constructive discussions within the group.
He added, “Reaching a consensus does not mean that all members of the governing council have the same economic outlook or view on interest rates. It means that members agree on the best decision at a specific time.”
Vincent, appointed as an external, non-executive deputy governor for two years, aims to bring diverse perspectives to the central bank’s consensus-based policy-making process.
The Bank of Canada’s next interest rate decision and updated economic forecasts will be released on Oct. 23 in its monetary policy report.
