C. D. Howe’s Overnight Moves Need Work

August 9, 2011

1-minute read

Less than a month ago, the C. D. Howe Institute released a paper by Michael Parkin, “Overnight Moves: The Bank of Canada Should Start to Raise Interest Rates Now.” The next day, its Monetary Policy Council called on the Bank to increase the overnight interest rate.

This call was terrible. The following week, Statistics Canada reported June’s significant drop in inflation – the boogeyman that supposedly warranted a rate hike. Specifically, headline inflation fell to 3.1% (near the top of the Bank’s target range) and core inflation fell to 1.3% (near the bottom of this range).

More importantly, the faltering economic recovery (including a contraction in Canada’s GDP) clearly warrants keeping interest rates as low as possible. Given recent turmoil in global capital markets, the debate is now about cutting interest rates and/or resuming quantitative easing rather than tightening monetary policy.

The European Central Bank is a laughingstock for having raised interest rates last month, worsening the Eurzone crisis. Fortunately, the Bank of Canada disregarded the C. D. Howe Institute’s advice to do the same and kept its overnight rate level last month.

The Institute’s Monetary Policy Council has fairly consistently erred on the hawkish side. In particular, it wrongly recommended higher interest rates than the Bank delivered throughout 2008, as we descended into the Great Recession.

The title of Parkin’s paper seems like a reference to the Bob Seger classic, Night Moves. To quote from that song’s second verse, the C. D. Howe Institute appears to be “workin’ on mysteries without any clues.”

  • Erin Weir is Senior Economist with the International Trade Union Confederation and a CCPA Research Associate.

Topics addressed in this article

Share this page

Show your support

Since the beginning of the pandemic, our writers and researchers have provided groundbreaking commentary and analysis that has shaped Canada's response to COVID-19. We've fought for better supports for workers affected by pandemic closures, safer working conditions on the frontline, and more. With the launch of the new Monitor site, we're working harder than ever to share even more progressive news, views and ideas for Canada's road to recovery. Help us grow.

Support the Monitor