In democratic societies, central banks wield enormous power to make decisions that affect the lives of people across society. It is therefore vital that these institutions maintain high levels of trust. Trust is earned through strong governance, transparent communication and delivering on core responsibilities.
One of these responsibilities is setting monetary policy that supports economic stability and growth while containing inflation. The decision to raise, maintain or lower interest rates is a complex process that takes many factors into account. To help Governing Council members understand the implications of their options, the Bank produces a detailed Monetary Policy Report (MPR), most recently published in July. It examines the global and Canadian economies in terms of production, spending and employment, as well as inflation and its risks over a two-year horizon.
The final decision to raise or maintain rates is a result of the contributions of many different Bank staff members, including advisors and managing directors from economic departments. They present their analysis and recommendations for interest rate decisions to Governing Council in a meeting called the Risk and Recommendations Meeting, which typically takes place about a week before the decision is announced.
When traders think about which direction the ECB will take on interest rates, they are looking at not only the composition of the Governing Council and its distribution of voting rights, but also economic factors like Brexit and trade frictions. They are trying to figure out what information will convince them that Governing Council is serious about its mandated goal of achieving price stability.