Eh?: Wait and See Is Bank of Canada’s NIRP Framework

[Editor:  Got to love these bankers north of the border. With one of the soundest banking systems here’s what the Bank of Canada had to say about negative interest rates. ]

Bank of Canada Report from January 2016
Bank of Canada Report from January 2016

Considerable uncertainty remains, however, as to precisely how far below zero the policy rate could go before markets became materially impaired or the demand for bank notes increased significantly. Furthermore, the Bank’s estimate will likely evolve over time as we monitor the experiences of other central banks operating in a negative interest rate environment or observe how Canada’s financial system would adapt to a negative rate environment. In practice, should rates be lowered below zero, the risk of triggering unintended consequences would need to be assessed carefully, based on a detailed and continuous monitoring of indicators of market functioning and the demand for bank notes. In the event that the Bank judged that the lower bound was being approached, it would clearly communicate that information to the public.

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