Public trust in central bank depends on transparency, says official
The Bank of Canada must prioritize transparency and clear communication to maintain the trust of the public, according to Nicolas Vincent, the central bank’s external deputy governor.
In a speech delivered in Sherbrooke, Quebec, Vincent explained the bank’s rate-setting process and stressed that how decisions are communicated is nearly as important as the decisions themselves.
Vincent pointed to a recent misunderstanding after the BoC’s interest rate cut in July, where some misinterpreted the bank’s message about inflation risks.
“Some people interpreted this to mean that we believed downside risks had strengthened,” Vincent said in his remarks. “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.”
Vincent explained that subtle differences in interpretation can have a significant impact, which is why choosing the right words is critical. The Bank of Canada’s governing council lowered its key interest rate earlier this month to 4.25%, marking the third rate cut of the year.
Unlike other central banks, such as the US Federal Reserve and the Bank of England, where interest rate decisions are made by vote, the Bank of Canada makes decisions by consensus.
Vincent acknowledged that differing opinions among governing council members are normal and even beneficial to the decision-making process.
“I should also mention that reaching a consensus does not mean that all members of governing council share the same point of view on the economic outlook or the path for interest rates in the coming months,” Vincent said.
“It means that members come to an agreement about the best decision to make at a particular moment in time.”
Read more: How did the Bank of Canada reach its latest decision to cut rates?
Vincent’s two-year term as an external deputy governor began last year, part of an effort to bring diverse perspectives into the Bank’s consensus-based policy-making approach.
The next interest rate decision from the Bank of Canada is scheduled for October 23, when the central bank will also release its updated economic forecasts in its monetary policy report.
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