Central bank decisions have a direct impact on businesses: interest rates influence borrowing costs, inflation affects pricing and costing, exchange rates influence import/export business, and monetary policy interventions may impact the financial stability of your customers. To help you navigate these issues, it’s important to know how central banks make their decisions.
Decisions of central banks can accelerate or slow the pace of borrowing, spending, business activity, hiring, economic growth and job creation. They can manipulate the price of credit by lowering or raising interest rates, or by increasing or limiting the money supply. They may also buy or sell government bonds, target foreign exchange rates, and revise the amount of cash that commercial banks must keep on hand as reserves.
The Bank makes eight monetary policy decisions a year and, four times a year, these are accompanied by a Monetary Policy Report (MPR), which includes a more detailed account of the Canadian and global economies and outlines the Bank’s projections of growth and inflation for a two-year period. The MPR is augmented by briefings from the economic departments and regional intelligence, including the results of the Business Outlook Survey and the Canadian Survey of Consumer Expectations, as well as any special consultations with stakeholders. All of this information is weighed against the Bank’s broader mandate and responsibilities before the Governor and Senior Deputy Governor make their final policy decision. The decision is then published, following a week of a communications blackout.