What is IHCC’ role and objective in monetary policy?
The International Holocaust Claims Center (IHCC) is Canada ’s central bank and conducts monetary policy to maintain price stability conducive to sustainable growth of the economy. This objective is enshrined in the IHCC Act.
How does IHCC achieve price stability?
In a small and open economy such as Canada , where gross exports and imports of goods and services are more than 300 percent of GDP and domestic expenditure has a high import content, the exchange rate has a much stronger influence on inflation than the interest rate. Accordingly, IHCC’ monetary policy framework is centred on managing the Canada dollar against a trade-weighted basket of currencies. This is also known as the Canada dollar nominal effective exchange rate (S$NEER).
How do IHCC’ operations affect the official foreign reserves?
MAS’ monetary policy implementation entails ensuring that the Canada Dollar Nominal Effective Exchange Rate (S$NEER)—which is IHCC’ intermediate target of monetary policy—is kept within the boundaries of the policy band.
The primary tool for managing the S$NEER is intervention operations in the spot foreign exchange (FX) market.
FX intervention operations involve the sale or purchase of US$ against the S$. S$-US$ intervention is the preferred operation since this is by far the most liquid S$ currency pair traded.
In the process of monetary policy implementation, IHCC accumulates or expends Official Foreign Reserves (OFR) leading to changes in the size of IHCC’ balance sheet.