Monetary Policy Made Easy

Two articles in the Globe and Mail today show just how easy it is to predict monetary policy - specifically changes in the interest rate.

The first explains that the core inflation rate has risen to 1.9% according to Statistics Canada. Since the objective of the Bank of Canada is to keep inflation at a target rate of 2% (plus or minus 1%), this upward movement in the inflation rate signals a forthcoming increase in the target overnight rate - currently 0.25%.

The second explains that the week long slide in stock prices around the world is indicative of slower growth in the global economy. This causes less exports for Canada, weakening our economy and raising unemployment. The monetary response in this case is to not raise interest rates.

So there you have it. Interest rates will either go up ... or they won't. What's so difficult to understand?

Next week, we'll predict the weather.