The Bank of Canada should lower the overnight interest rate to 0.25% at its next announcement on April 21, according to the latest recommendation from the C.D. Howe Institute’s Monetary Policy Council.

Six of the 10 members attending the meeting recommended cutting the overnight rate to 0.25%, while four favoured a rate of 0.5%.

With the recommended overnight rate so low, the group said some modification of the Bank of Canada’s normal approach of setting an “operating band” 0.25 percentage points either side of the target was in order.

Some members favouring a 0.5% rate said that they felt that the Bank of Canada should hold the rate at or below that level.

Members favouring a 0.25% rate felt that the Bank of Canada should not let the bottom of the band — the rate at which it pays interest on settlement balances – go to zero. They argued that the band around the target should shrink, perhaps to 0.125 percentage points.

The MPC is a panel sponsored by the C.D. Howe Institute to provide an independent assessment of the monetary stance most appropriate for the Bank of Canada as it seeks to achieve its 2% inflation target. William Robson, the Institute’s president and CEO, chairs MPC.

IE