Bank of Canada Reviews Framework in ‘More Shock-Prone World’

Governor Tiff Macklem says the Bank of Canada’s review of its framework next year must assess whether it gives the central bank the best chance of keeping inflation low and stable in a “more shock-prone world.”Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Governor Tiff Macklem says the Bank of Canada’s review of its framework next year must assess whether it gives the central bank the best chance of keeping inflation low and stable in a “more shock-prone world.”Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.Macklem, speaking in a year-end speech in Montreal, said 2025 was marked by the US swerve to protectionism and global trade upheaval. As the bank looks ahead to the 2026 framework review, conducted every five years, it must account for this shifting economic landscape, he said. “Protectionist US trade policy and high tariffs are adding costs and creating economic volatility. More generally, ongoing structural changes are turning into headwinds that have the potential to disrupt supply and add inflationary pressures,” he said in prepared remarks. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.“The renewal of our monetary policy framework in 2026 is the opportunity to ensure we are ready for a more shock-prone world.” Macklem reiterated that the central bank does not intend to review its 2% inflation target, saying the “anchor” it provides is more important than ever. But he said the bank needs to look at how it conducts monetary policy to hit that target, given not only US trade policy but other shocks including artificial intelligence, climate change and geopolitical instability.He also said the central bank wants to “better understand the link between inflation and housing affordability.” The bank’s role in shelter costs has been closely scrutinized in recent years, as its post-pandemic rate hikes caused mortgage interest costs to jump. On the flip side, rate cuts can juice the real estate market, causing home prices and rents to spike.The federal government — now led by Prime Minister Mark Carney, the former governor of the Bank of Canada and Bank of England — also plays a joint role in the mandate renewal. In 2021, then-Prime Minister Justin Trudeau’s government directed the bank to use monetary policy to support “maximum sustainable employment” as long as those efforts didn’t jeopardize stable prices.In Tuesday’s speech, Macklem did not provide any new commentary on the near-term path for rates. The bank held its key policy rate at 2.25% last week, and the governor reiterated the bank sees borrowing costs at “about the right level,” but it’s ready to respond if the outlook changes.“Inflationary pressures continue to be contained despite added costs related to the reconfiguration of trade. Total CPI inflation has been close to the 2% target for more than a year now, and we expect it to remain near the target,” he said. The governor also reflected Tuesday on new regulatory responsibilities the bank will hold, overseeing stablecoin, open banking and real-time payments.Carney’s government promised stablecoin regulation in its November budget and subsequently released draft legislation. Macklem said ensuring a reliable stablecoin system requires a few critical elements, including that a stablecoin must be pegged at a one-to-one ratio to a central bank currency and be backed by high-quality liquid assets. Conditions for redeeming stablecoins must be fully disclosed, including timing and any fees that need to be paid, he added.The bank governor contrasted well-regulated stablecoins with Bitcoin, which he described as having a price that is “very volatile, making it a lousy store of value.”In open banking — which grants individuals control over their own financial data — as well as stablecoin and real-time payments, he pledged the central bank would “safeguard customer data and minimize the risk of fraud.”Macklem also touted new additions to Canada’s bank notes coming next year — a C$20 ($14) bill featuring King Charles III on the front and the Canadian National Vimy Memorial on the back, which he said would showcase innovation in anti-counterfeit technology. A C$5 note picturing Canadian icon Terry Fox will arrive soon after.—With assistance from Mario Baker Ramirez.Postmedia is committed to maintaining a lively but civil forum for discussion. 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