BOC’s Wilkins: At time of rate hikes we didn't think growth pace was sustainable
|More comments from the Bank of Canada (BOC) Senior Deputy Governor Carolyn Wilkins, from her speech to the Money Marketeers at NY University, via Reuters.
During periods of uncertainty like today, a cautious approach to monetary policy may be prudent.
"Caution has its limits"; there are complex trade-offs, including those related to financial stability.
"Uncertainty is not a reason for paralysis in decision making".
Monetary policy may respond to negative shocks more aggressively than usual when near the effective lower bound.
The policy is asymmetric in that it responds more aggressively to negative shocks than to positive shocks.
One reason for caution in Canada is greater uncertainty about the strength of the policy transmission mechanism.
Higher household debt has likely heightened the sensitivity of spending to rate increases; difficult to know by how much.
Another reason for caution is wanting to avoid having to reverse policy abruptly in the future.
We will be closer to the effective lower bound more often than in the past because of lower neutral interest rate.
Bank particularly focused on data on how wages, potential output are progressing, and effects of two earlier rate hikes.
There are trade-offs when it comes to monetary policy, micro, macroprudential measures help most on financial stability.
There was no sense at the time of rate hikes that we thought the pace of growth at the time was sustainable.
Recent OSFI rules are good measures but warrants watching impact.
Prudent for the central bank to take uncertainty about inflation seriously and watch the data.
The idea of a 'hot or not' economy not really embedded in our thinking.
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