On 19 September 2000, the Bank of Canada published details of its plan to adopt a new system of eight "fixed" or pre-specified dates each year for announcing any changes to the official interest rate it uses to implement monetary policy. Before finalizing and implementing the specific calendar of fixed dates, including the day of the week and time of day for announcements, the Bank invited interested Canadians to provide their views on the new fixed-date system by 13 October 2000. Specifically, they were invited to respond to four questions:
Summary of Consultation Results
Responses to these questions were registered in a number of ways: through a consultation mechanism created on the Bank of Canada Web site, by email, and by surface mail. The Bank received a total of 18 consultation submissions. These included submissions from the Investment Dealers Association of Canada, financial market participants, economists, the media, and interested individuals.
General support for the adoption of fixed announcement dates
All respondents registered their support for the Bank's decision to move to fixed announcement dates. Among the reasons cited were more effective implementation of monetary policy and reduced uncertainty about the timing of interest rate announcements which should lead to improved trading and liquidity in capital markets. The goal of focusing public attention more closely on Canadian economic fundamentals was also noted.
Majority support for Tuesday announcements
The overwhelming majority of respondents identified Tuesday as the preferred day of the week for announcements. Among the reasons given for supporting a Tuesday over a Wednesday announcement was that this would avoid any potential perceived interference with Wednesday bond auctions.
The Bank's view is that, on balance, a Tuesday announcement is optimal timing, since it permits the Bank to make a final decision on monetary policy action early in the week and then to announce that decision as promptly as possible.
A Tuesday announcement that occurs on the same day as a treasury bill auction is not necessarily a problem for the smooth functioning of markets
A number of respondents indicated that if an announcement day coincided with a treasury bill auction day, this could pose a potential problem for those market participants preparing tenders for the auction and for whom knowing the Bank's decision on interest rates prior to the auction is important for a stable auction process. However, the majority of respondents identifying this concern also recognized that a 9 a.m. announcement time, as the Bank had proposed, should forestall any such problems, since the Bank's decision on monetary policy action would be public well ahead of the auction time at 12:30 p.m., allowing participants adequate time to make any planning adjustments. In addition, respondents felt that a rate change would already be anticipated by markets.
The Bank's view is that, should a fixed announcement date and a treasury bill auction day coincide, a 9 a.m. announcement time would support the continued smooth and efficient functioning of markets by ensuring that the Bank's decision on interest rates would be known ahead of the auction. In addition, with the Bank's more forward-looking public communication on monetary policy under fixed announcement dates, financial markets and the public should be in a better position to anticipate the direction of monetary policy.
Majority support for 9 a.m. (Eastern Time) announcements
The overwhelming majority of respondents indicated that they preferred announcements at 9 a.m. (ET) since this has been the Bank's recent practice, the market is accustomed to it, and this timing would provide an element of consistency in the transition to the new fixed-date approach. Respondents also noted that 9 a.m is preferable because the market is fully functioning at that time, and liquidity tends to be higher in the morning. In addition, they emphasized that a 9 a.m. announcement would avoid potential problems with the regular functioning of markets should the announcement day happen to fall on a treasury bill auction day (see previous point).
The Bank's view is that a 9 a.m. announcement, as is its current practice, will provide interest rate information in a timely manner that will serve the smooth and efficient functioning of financial markets.
Other issues—possible volatility in markets
While registering support for the Bank's adoption of fixed announcement dates, a number of respondents expressed concern about possible volatility in foreign exchange and debt markets that could ensue when a Bank announcement date is separated from a U.S. Federal Reserve System announcement date, especially by more than a week. Some respondents suggested that the dates of the Bank's fixed announcements should be adjusted accordingly.
The Bank's view: When the Bank announced its intention to adopt fixed dates, it indicated that the selection and timing of eight dates were based on the timing of economic information and the need to analyse its implications for future inflation. Four of the announcement dates are timed to follow the analysis that is undertaken after the quarterly release of the Canadian National Accounts; the other four dates are scheduled roughly mid-way between these dates, based on the receipt and analysis of new data. While the dates of the Bank's fixed announcements will differ from those of the U.S. Federal Reserve System, this interval should permit more attention to be focused on Canadian economic fundamentals and circumstances in the period leading up to, and following, the Bank's interest rate announcements.
The Bank feels that once the fixed-date calendar is incorporated into the planning schedule, market players will make the necessary adjustments, consistent with market stability. One of the advantages of the fixed-date approach is that the eight additional Bank announcements, together with its other key monetary policy statements throughout the year, will provide a more regular, frequent, and continuous account of the Bank's views on the Canadian economy. By keeping the public informed, the Bank expects that economic analysts, market participants, and the public generally will have a better understanding of the factors that influence monetary policy. In short, they will be in a better position to anticipate the direction of future policy, including during periods between a U.S. Fed announcement date and the Bank's next announcement date. Over time, better anticipation of policy should help to promote market stability.