Bank of Canada open to alternatives to inflation target: Wilkins

By Andrea Hopkins

OTTAWA (Reuters) - While the Bank of Canada's inflation targeting regime has worked well, the central bank is open to alternatives and wants to communicate in a way that avoid unproductive volatility, Bank of Canada senior deputy governor Carolyn Wilkins said on Thursday.

Amid criticism that the bank surprised markets with its rate hike last week, Wilkins said that she will consider ways to improve communication about how the bank makes policy decisions, but said adjusting rates only when the market expects it would lead to bad outcomes.

"My hope is there is some way to interact that makes it easier for people to understand how we think about the economy, what information is important to us and how that might be evolving," Wilkins told reporters after a conference on the bank's inflation target mandate.

The central bank's monetary policy framework, which includes a 2 percent inflation target, has come under increased scrutiny in recent months as the bank twice raised rates even though inflation remains well below the target.

Wilkins said that while inflation is in the lower part of the bank's target range, part of that is owing to temporary factors and the bank is forward-looking.

"The very first place to start, is to understand that inflation targeting is a forward-looking business. If you choose your policy rate based on where inflation is today, you'll make a mistake," Wilkins said.

She also said that while the bank's economic models have not been perfect, they have been "helpful enough to keep us in the ballpark" of understanding where the economy is.

The bank struck back on Monday against criticism it had not adequately prepared markets for last week's rate increase after a prominent economist took issue with the bank's lack of communication in the nearly two months leading up to the hike.

While some analysts had assumed the bank would wait until October to raise rates because policymakers have a news conference then to explain the decision, Wilkins said eight meetings a year gives the bank the timing it needs to react to economic changes and "in that sense every meeting is live."

"With any central bank you are going to find incidents where participants are surprised," Wilkins said, but added there is no disagreement that people needed to understand how the bank thinks about its decisions and what factors it takes into account in setting policy.

(Reporting by Andrea Hopkins; Editing by Meredith Mazzilli and Grant McCool)