The Government of Canada and the Bank of Canada jointly review and renew the Bank’s monetary policy framework every five years. The Bank then independently conducts monetary policy to achieve the framework’s goals. The Government and the Bank agree that monetary policy must work to promote the economic and financial well‑being of Canadians. We also agree that the best way monetary policy can do this is by keeping inflation low, stable, and predictable, thereby protecting Canadians from large increases in the cost of living. A credible and well‑understood monetary policy framework that focuses on price stability helps the economy grow, supports investment and job creation, and fosters confidence in Canada’s economy.
Over the past five years, the global and Canadian economies have been hit by repeated shocks. Post‑pandemic disruptions in supply chains, rapid shifts in demand, and geopolitical conflicts have pushed up inflation around the world, including in Canada. During this period, the Bank of Canada acted forcefully to restore price stability. While the adjustment was difficult for households and businesses, the policy response worked: inflation returned to the 2% target and the 1% to 3% control range. The experience of the past five years has reinforced the value of a clear and credible inflation-targeting framework that provides the Bank with the mandate and the flexibility to respond decisively to changing economic conditions.
The Bank of Canada has reflected on the period of elevated inflation and its policy response. The episode underscored that high inflation imposes significant costs on households and businesses, eroding Canadians’ purchasing power and their sense of the fairness of our economic system.
The Bank of Canada has undertaken a thorough assessment of the recent period and harvested lessons learned to inform and improve the conduct of monetary policy. The Bank views the episode not as a failure of the framework’s design, but as a challenge to its implementation amid extraordinary global shocks. In response, the Bank has strengthened its analytical capacity to better assess how global and domestic supply‑side shocks transmit to Canadian inflation, and how policy should respond when such shocks are larger and more persistent than normal. The Bank is committed to applying these insights with vigilance and clarity, as it implements monetary policy within the existing framework.
The Bank and the Government are renewing the monetary policy framework while Canada’s economy faces profound change and heightened geopolitical uncertainty. International trade patterns are being redrawn, supply chains are being reconfigured, and global investment flows are shifting. At the same time, demographic shifts, widespread adoption of artificial intelligence and other structural forces will continue to alter our economy in the years to come.
Against this backdrop, the Government of Canada and the Bank of Canada still agree that the best contribution monetary policy can make to the well‑being of Canadians is to maintain low, stable, and predictable inflation. Price stability protects the purchasing power of households and allows businesses to plan and invest with confidence. It supports maximum sustainable employment and economic growth. It also fosters a stable financial environment.
In renewing the framework for another five‑year period, the Government and the Bank reaffirm that the 2% inflation target remains the policy objective. The target has served Canadians well for more than three decades and is a clear and credible anchor for the Bank’s monetary policy decisions. Monetary policy will maintain a primary focus on keeping inflation low and well anchored, while allowing for flexibility in its implementation to support economic growth and strong and stable labour market outcomes.
The Government of Canada and the Bank of Canada agree to renew the inflation‑control target on the following basis:
- The inflation target will continue to be 2%, the midpoint of the 1% to 3% inflation‑control range, with inflation measured as the 12‑month rate of change in the consumer price index.
- Monetary policy will continue to be conducted in a symmetric manner, with equal emphasis on deviations above and below the target.
- The Bank will continue to use the flexibility of the framework to respond to economic shocks while maintaining a clear focus on returning inflation to target over time.
- The agreement will run for another five‑year period, ending December 31, 2031.
The Government of Canada and the Bank of Canada remain committed to ensuring that monetary policy supports the economic and financial well‑being of Canadians. The experience of the past five years has reaffirmed the strength of the inflation‑targeting framework and the importance of a clear and unwavering commitment to price stability. By renewing this framework, we reaffirm our shared dedication to safeguarding the value of Canadians’ money and promoting a stable and resilient economic future.