A central bank’s decisions have an impact on everyone, in different ways. So it’s natural that they are the subject of attention and interest, even debate. This is because they affect our everyday lives, affecting prices and output in a chain of effects called the “monetary policy transmission mechanism.”
Monetary policy decisions are made at monetary policy meetings by the Bank’s Board, with the assistance of other staff. These meetings usually happen eight times a year and, in exceptional cases, on other days. At these meetings, the Bank Board considers a variety of data and reports. One of the most important sources is the MPRC, a group of advisory council members and managers of economic departments who provide information to Governing Council about the risks and implications of raising, maintaining or changing the policy rate. This information is then combined with the Bank’s own research, including a staff projection of the economy and inflation published about a week before the decision.
Another major piece of information is the results from the Bank’s Business Outlook Survey, a series of interviews conducted by regional offices with businesses across Canada. These interviews allow the Bank to see what local businesses are thinking about inflation, employment and other topics that could influence a policy decision.
In deciding what to do, the Bank Board takes a number of factors into account, including inflation targets and its overall goal to keep prices stable while fostering sustainable growth. At the same time, other branches of government have clear responsibilities in helping central banks achieve their objectives and navigate hazards ahead. For example, enacting fiscal policies that keep debt sustainable helps reduce the risk of “fiscal dominance” and its threat to price stability.