The second-in-command at the Bank of Canada said Wednesday that any changes to the underpinning of its monetary policy will be judged against how they affect the distribution of income and wealth in this country.

Senior deputy governor Carolyn Wilkins said the various frameworks the bank is considering are also being tested for how they fare in good economic times and bad.

The central bank is examining its monetary policy framework ahead of its renewal and is looking at whether to maintain its current goal of targeting an annual inflation rate or adopt a different target.

Whichever is chosen will underpin central bank decisions, including the path of its key interest rate that can then influence the rates charged for loans and mortgages.

Speaking at the start of a day-long workshop hosted by the bank, Wilkins said no one framework has emerged as a clear front-runner.

She added that no matter what framework is chosen, the bank’s ability to smooth out sharp, sudden drops in the economy or provide sector-specific help will be limited.

“Monetary policy is ill-equipped to deal with sector-specific issues. We need to take them into account in our monetary policy decisions, but our focus must be on the macro economy to support sustainable growth and price stability,” Wilkins said, according to the prepared text of her opening remarks.

“In the current context, coming out of such a severe hit to jobs and economic activity, the bank must keep its eye on the ball.”

She noted that other policies are better at handling the issues the central bank can’t, such as government aid, or mortgage stress-testing to limit debt risk when interest rates are low.

“All of this together highlights the challenges of policy co-ordination and the importance of central bank independence,” Wilkins said in her remarks.

Next year, the central bank will renew its framework agreement with the federal government as part of a regular five-year review that has taken place since the 1990s when it first started targeting inflation.

The two per cent inflation target is considered largely arbitrary, but the bank has found it to be the sweet spot for keeping the economy and prices stable.

If inflation runs high, the bank can raise its key interest rate to cool the economy, and drop rates if there’s a need to prod economic activity, just as it has over the past few months.

The bank slashed its key interest rate at the start of the pandemic to 0.25 per cent, which is as low as governor Tiff Macklem says it will go. He has also said that’s where the rate will stay until the economy has rebounded and inflation is back at the two per cent target.

Inflation is projected to remain low this year and next, and the economy and employment not back to pre-pandemic levels potentially until 2022, based on projections from the federal government, the bank, and private sector economists.

While official measures show near-zero inflation, the perception for consumers is that prices have jumped since March, such as for meat, which is up by more four per cent since February, Wilkins says.

“Prices that are falling, like those around travel, are not relevant to most people, but the prices that are rising, like the cost of food, are those we encounter every week,” the text of her statement says.