placing greater emphasis on labour market indicators, a move which was seen by some experts as catching up with its Australian counterpart. Since its establishment in 1959, the Reserve Bank of Australia (RBA), has had an employment mandate which is in fact written on a wall of the bank. In its heritage-listed bank building, a bronze plaque reminds employees and visitors that the central bank’s duty includes the contribution to full employment and economic prosperity of the Australian people.
This week, the Bank of Canada decided to follow suit, and is expected to actively seek the level of maximum employment required to sustainably arrive at the inflation target, according to experts. “This means the BoC will have a greater tolerance for inflation overshoots,” Joseph Capurso, head of international economics at Commonwealth Bank, said.
Issuing its five-year review on Monday, the central bank noted that shifts in the nature of work, technological change, globalisation and shifting demographics are having profound effects on the country’s labour market. As a result, it is becoming increasingly difficult to determine the highest level of employment which the economy could sustain before inflation pressures built up. Therefore, at a time when its cash rate is “at its lowest possible level”, the BoC will use the flexibility of the 1 to 3 per cent range to seek the maximum sustainable level of employment.
