When decisions are made
The Bank makes its interest rate decisions on eight pre-announced dates throughout the year, with an interval of six to seven weeks between each one.
In exceptional circumstances, the Bank can change the policy rate on dates that fall outside this schedule. This has occurred on a few occasions—most recently in March 2020, in response to the COVID-19 pandemic.
The major participants in the decision-making process are the Governing Council, the Monetary Policy Review Committee (MPRC) and the four economics departments at the Bank.
The Governing Council, which is responsible for making each interest rate decision, consists of the Governor, the Senior Deputy Governor and four Deputy Governors.
The MPRC plays an important role in the discussions leading up to the decision. It consists of the Governing Council, several advisors, managing directors of departments and other senior personnel.
These participants provide advice and recommendations on the course of action for monetary policy to members of the Governing Council, who make the final decision.
The Bank draws on useful information and insights from both inside and outside the Bank. External information includes:
- data from agencies such as Statistics Canada
- current analysis and forecasts from other central banks, governments, international financial institutions and private sector economists
- expectations derived from financial market pricing
- input from stakeholder groups with whom the Bank meets to discuss the economy
- surveys such as the Bank’s Business Outlook Survey and the Canadian Survey of Consumer Expectations
- academic research
This external information is combined with the contributions of Bank staff.
A four-stage process
The monetary policy decision-making process comprises four key stages:
- Presentation of staff projection and economic briefing
- Final policy recommendations
- Deliberation and decision
- Publication and communication
Stage 1: Presentation of staff projection and economic briefing
The presentation of the staff projection and the briefing by economic departments to the Governing Council happen about three weeks before the interest rate decision.
The projection is based on staff forecasts for the global and Canadian economies, commodities and inflation.
Since Canada relies on trade with other countries, international developments such as movements in commodity prices, growth in global demand and prospects for the US economy play a major role in determining the path of the Canadian economy.
The staff forecasts are informed by economic models, supplemented by a variety of other pieces of data. The combined information from these models and analyses is blended with judgment to produce a base-case—or most likely—scenario. At this first meeting with Governing Council, staff present the base-case scenario as well as key risks to the outlook and alternative scenarios.
During the presentation, members of the MPRC ask questions about the most likely path for the economy and the main risks and uncertainties around the outlook and provide feedback on the forecast. This can involve asking staff to adjust the projection using different assumptions or incorporating risks or alternative scenarios, which will be discussed later on as a baseline forecast for the MPR.
While the staff projection involves mainly the Canadian Economic Analysis and International Economic Analysis departments, all four economics departments present at this briefing.
The four economics departments are:
- Canadian Economic Analysis, which provides analysis of domestic economic conditions
- International Economic Analysis, which looks at global economic developments and their implications for Canada
- Financial Stability, which looks at issues that may impact financial stability in Canada and globally
- Financial Markets, which provides analysis on domestic and foreign financial markets
They present important inputs to Governing Council, including:
- an updated monitoring of economic developments and risks
- an analysis of credit conditions
- an analysis of financial stability considerations
- an overview of financial market conditions and monetary policy expectations in Canada, the United States and the rest of the world
In addition to the economic department briefing, staff also provide a regional intelligence briefing to the MPRC, which focuses on analysis from the Business Outlook Survey, the Canadian Survey of Consumer Expectations, the Business Leaders’ Pulse survey and any special consultations with stakeholders.
Stage 2: Final policy recommendations
The final policy recommendations of staff are presented about two weeks after the economic briefing and staff projection and about one week before the publication of the decision. During this final week, members of the Bank’s Governing Council observe a communications “blackout” (or “no-comment” period) to help mitigate unnecessary speculation about monetary policy actions.
A senior member of the Canadian Economic Analysis or International Economic Analysis department summarizes the key risks to the outlook, updates the outlook that was presented in Stage 1 with new information and provides a recommendation regarding any policy action to be taken. The overview and recommendation are the starting point for an extensive discussion by the entire MPRC. Tactical and communications issues associated with various policy options are then reviewed, based on a note prepared by the Financial Markets Department. The meeting concludes with each member of the MPRC, except for the Governing Council members, providing a policy recommendation.
Following the final policy recommendations, members of the Governing Council, advisors and the Managing Director of Communications gather to review and further discuss the information presented at the meeting.
Stage 3: Deliberation and decision
The Governing Council’s decision-making process then begins. Members of the Governing Council meet several times during the remainder of the week to review the information and recommendations that they have received, exchange views and explore any outstanding issues and differences in opinion. Further discussions are held early the following week, a decision is reached by consensus, and a press release is drafted and approved.
Stage 4: Publication and communication
The final stage of the process focuses on the publication of the press release at 10 a.m. on Wednesday, announcing the Bank’s decision and explaining the reasons behind it.
- Four times a year, this message is reinforced and expanded with the simultaneous release of the Monetary Policy Report (MPR), which provides a more detailed account of Canadian and global economic developments, the Bank’s projections and the major upside and downside risks that could affect the inflation outlook. The Governor and Senior Deputy Governor also provide additional insight into the policy decision in their opening statement at the press conference that follows the release of the MPR.
- Since 2018, for the four interest rate decisions that do not include a MPR, a member of Governing Council has given an economic progress report speech the day after the announcement, followed by a press conference. This means the Bank holds a press conference after every interest rate decision.
In addition to the MPR, two other publications are released four times a year, approximately one week before the interest rate decision.
- The Business Outlook Survey summarizes the results of the quarterly interviews that the Bank’s five regional offices conduct with a representative sample of businesses across the country. This survey is an important complement to the other material that the MPRC and the Governing Council rely on and serves as a “reality check” on regional economic developments.
- The second publication is the Canadian Survey of Consumer Expectations, a survey of Canadian households aimed at measuring their views of inflation, the labour market and household finances, as well as topical issues of interest to the Bank of Canada.
The final elements of the Bank’s communication effort around the four issues of the Monetary Policy Report are appearances by the Governor and the Senior Deputy Governor before the House of Commons Standing Committee on Finance and the Standing Senate Committee on Banking, Commerce and the Economy. After each publication, members of the Governing Council and senior officials also present the MPR in front of business and financial markets audiences across Canada and beyond.
And beginning in January 2023, the Bank will publish a summary of deliberations roughly two weeks after policy rate announcements to further enhance the transparency of the Governing Council’s consensus-based decision-making process.
The Bank places a great deal of importance on communication. It is a critical part of our accountability to Canadians and enhances the effectiveness of monetary policy by increasing the public’s understanding of the economy and our actions.
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