Amid growing criticism, Macklem says Bank of Canada’s independence not in jeopardy

As criticism mounts from politicians, pundits and interest groups, Bank of Canada Governor Tiff Macklem says he feels no threat to the institution’s independence.

“I’m not concerned that the independence of the bank is at risk,” Macklem said in an interview with The Canadian Press on Wednesday.

Over the past year, the central bank has come under intense scrutiny both for its policy response to the COVID-19 pandemic and for the extraordinary measures it has taken this year to combat high inflation for decades.

“Yes, we get a lot of tough questions. People should be asking those tough questions. But I didn’t feel any threat to our independence,” Macklem continued.

Since March, the Bank of Canada has raised its key rate six times in a row, beginning one of the fastest monetary tightening cycles in its history.

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Canada’s central bank raised its benchmark interest rate to 3.75% as part of its ongoing efforts to reduce inflation. Bank of Canada Governor Tiff Macklem pointed to signs of an economic slowdown that could bring inflation under control, but could also lead to recession.

The rate hikes were in response to inflation reaching levels not seen in nearly four decades. Canada’s annual inflation rate was 6.9% in September. It has been steadily declining since hitting its highest rate this year of 8.1% in June.

The ongoing rate hike cycle has drawn heavy criticism from progressive voices concerned about its effect on jobs, as forecasters increasingly expect higher interest rates to trigger a recession.

Crucial Independence: Macklem

In a letter to Prime Minister Justin Trudeau on Oct. 21, NDP Leader Jagmeet Singh said that while he supports central bank independence, he warned that another rate hike would have a ” serious impact on families”.

Asked by reporters Tuesday about the letter, Finance Minister Chrystia Freeland acknowledged the economic difficulties Canadians face, but noted that institutional stability is important in difficult economic times, the independence of the Bank of Canada playing an important role in ensuring stability.

Singh’s criticisms didn’t stop the Bank of Canada from announcing a half-percentage-point rate hike on Wednesday and signaling that it was not yet done raising rates.

At a press conference on Wednesday, Macklem said the Bank of Canada faces tough decisions, and when the decisions are tough, central bank independence becomes more important.

He later echoed that message in his interview with The Canadian Press.

“A lot of people give us advice on what we should do,” Macklem said.

However, there is a reason why central banks are independent institutions, he added.

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“The reason for that is that there are tough decisions to be made and you have to look at the longer term. And it’s times like this, when it’s tough, that you see the value of central bank independence.”

Criticism of the Bank of Canada in Ottawa notably began with official opposition leader Pierre Poilievre, who sharply criticized the central bank’s government bond-buying program at the start of the pandemic.

He claimed the bank had printed money to enable federal spending, thereby fueling inflation. As he ran for leader of the Conservative Party of Canada, Poilievre vowed to fire Macklem if he became prime minister, although he did not explain how he planned to get rid of the governor given that the Act on the Bank of Canada would not give it that power.

On Sunday, Poilievre released a letter to Freeland outlining his demands for the fiscal side of Canada’s economic policy, as the government prepares for a fall economic statement on Thursday. He called for the reversal of all tax increases, including the carbon tax, and for any new spending to be “associated with an equivalent saving”.

Stimulus should have ended sooner: deputy governor

Macklem was appointed by the bank’s board with Governor-in-Council approval for a seven-year term. His term runs until June 2027.

In response to claims that the Bank of Canada has been printing money, the central bank took to social media this summer in an attempt to set the record straight, although that hasn’t stopped members of the conservative party to attack the central bank.

Many economists and market watchers have criticized the Bank of Canada for not raising interest rates sooner, and the central bank itself has indicated that the stimulus has gone on too long.

Last month, Bank of Canada Deputy Governor Paul Beaudry said in retrospect that governments and central banks should have withdrawn stimulus earlier as economies recovered from the COVID-19 pandemic, which would probably have limited inflation.

Now the Bank of Canada has swung the other way this year, aggressively raising rates and sparking further criticism.

In its latest monetary policy report, the Bank of Canada revised its economic projections, now taking into account a significant economic slowdown.

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He expects economic growth to stagnate by the end of this year and through the first two quarters of 2023, with growth between zero and 0.5%, before gaining ground in the second half of 2023. next year.

The Bank of Canada has repeatedly indicated that it intends to fulfill its mandate and that restoring price stability is its primary objective.

Singh’s recent letter to the prime minister is part of growing calls for the central bank to stop raising interest rates, or at least take a more cautious approach with its rate hikes.

Labor pushes back against the bank

Labor groups in particular have spoken out on the issue.

“The Bank of Canada is determined to push the economy into a recession, regardless of the impact on Canadians who could lose their jobs, their homes and their quality of life,” said Bea Bruske, President of the Labor Congress of Canada, in a press release. statement after Wednesday’s rate decision.

“Canada’s unions are calling on the Bank of Canada to suspend interest rate hikes until the impact of previous policy interventions is clear.”

Macklem said the central bank was aiming to balance risk by raising interest rates, but said if it hesitated in its decisions, Canadians would suffer from high inflation for longer.

“I am acutely aware that the Bank of Canada, particularly at this time, has a huge impact on the lives of Canadians. And that’s a big responsibility,” Macklem said.

As Canadians feel anxious, the governor said the central bank has a responsibility to be transparent with the public and inspire confidence that inflation will come down.

“I would like to get there faster, but it will take time.”

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