The Bank of Canada has just raised its interest rate again, bringing its policy rate to 4.5 per cent. This is the eighth time the bank has raised its rate, demonstrating how committed it is to its two per cent inflation target.

Today in The Conversation Canada, Ellen D. Russell from Wilfrid Laurier University writes about why the Bank of Canada is so committed to its inflation approach, and how this tenacity could be working against its interests.

Russell explains that, by emphasizing its commitment to fighting inflation, the bank aims to influence the expectations of the public. This is because expectations are self-fulfilling — if the bank successfully convinces Canadians that it can beat inflation, Canadians are more likely to refrain from actions that drive up prices, thereby supporting the bank’s fight against inflation.

But given the number of factors influencing inflation that are outside the bank’s control, this approach might no longer be feasible. Russell writes: “Ultimately, the reputation of the Bank of Canada will be undermined if the public believes that it’s pounding away with a hammer that is not needed and causing much hardship in the process.”

Also today:

Eleni Vlahiotis

Assistant Editor, Business + Economy

Tiff Macklem, Governor of the Bank of Canada, holds a press conference at the Bank of Canada in Ottawa on Jan. 25, 2023. THE CANADIAN PRESS/Sean Kilpatrick

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