(Ottawa) The governor of the Bank of Canada made an argument for central bank actions during the pandemic, hours after the country’s opposition leader suggested the institution focus on its target inflation.
The Bank of Canada took exceptional measures during the pandemic to facilitate borrowing and encourage low interest rates to stimulate demand.
Its government bond buying program, known as quantitative easing, has encouraged low rates on mortgages and business loans, in particular, while keeping borrowing costs low for a government federal spending historic amounts on emergency aid.
Speaking at a central bank conference, Tiff Macklem said that creating an inclusive recovery was fundamental to the role of the central bank in managing the economy.
Mr Macklem echoed calls earlier today from his US counterpart that leaving entrenched inequalities intact prevents some citizens and some economies from reaching their full potential.
The governor also said that discussions on how to create an inclusive recovery should not be seen as an extension of central bank mandates, but rather as already part of their missions.
“This conversation within central banks has sparked a debate about whether central banks are expanding their mandates, whether we are going too far and diverting our attention from an inflation target, and even a criticism that we should stay in our lane, ”he said on Tuesday.
“My personal view is that we are responsible for serving our citizens, not some of our citizens,” he said.
Mr. Macklem made the comments to close the conference on diversity and inclusion co-hosted by the Bank of Canada, the US Federal Reserve, the Bank of England and the European Central Bank. The Bank of Canada is expected to host the conference next year.
But before that, the federal government must renew the Bank of Canada’s mandate, which has happened every five years for the past three decades.
The bank has been instructed to anchor inflation between one and 3%, a range that typically leads it to a target of around 2%.
The pandemic has upended the central bank’s inflation framework, first by reducing inflation in 2020 to 0.7%, and now sending the consumer price index to an 18-year high – the Annual inflation rate was 4.4% in September – on the heels of supply chain problems. Mr Macklem warned that inflation rates would rise further, keeping them higher for longer.
The inflationary roller coaster has sparked calls on Parliament Hill from opposition conservatives that the central bank’s own actions, coupled with historic deficits, are pushing up the cost of living.
Speaking to reporters earlier today, Conservative Leader Erin O’Toole warned Prime Minister Justin Trudeau that guidance to the central bank should focus only on hitting an inflation target and nothing what’s more.
“We are really worried about our economic future,” O’Toole said after announcing that Pierre Poilievre, a vigorous central bank critic, will be his new finance critic.
“We also don’t think the bank’s mandate should be extended – we’ve been very clear on this – to include a range of other factors. We need to focus on our fundamentals. ”
A decision on the central bank’s mandate is expected to be made by the end of this year, or early next year.
Conservatives also attacked the central bank’s quantitative easing program, which lowered yields on short-term government bonds and likely made buyers think more about long-term bonds that lock in debt at low rates. of current interest.
Macklem said on Tuesday that the bond buying program challenged public perceptions of the Bank of Canada’s independence from political influence.
He also argued that it was more important than ever for central banks to be clear about their actions and goals.
“Confidence comes when everyone understands the actions we are taking and why (we are taking them),” he said.