Bank of Canada Governor Tiff Macklem last month issued a warning to provincial premiers who publicly called on the central bank not to raise its key rate, signaling that their demands could undermine the independence of the bank. the institution.
The premiers of Ontario, British Columbia and Newfoundland and Labrador wrote to Governor Macklem ahead of the Bank of Canada’s interest rate decision on September 6, telling him their concerns about the effects of the rate hike on their residents and asking the central bank not to increase its key rate further.
In a letter dated September 13, Tiff Macklem warned that instructions or requests from elected officials could give the impression that the independence of the Bank of Canada was threatened.
The response came a week after the central bank’s board of governors decided to keep its key rate unchanged. While Governor Macklem acknowledged that higher interest rates make life difficult for Canadians, he also pointed out that inflation, which higher interest rates are supposed to combat, hurts Canada’s most vulnerable people. the society.
“While I am very happy to hear your views on the impact of our policy decisions, instructions or requests from elected officials on how we should set interest rates could give the impression that independence The Bank of Canada’s operational operations are under threat. I am sure you will agree that this would be unfortunate,” Tiff Macklem wrote in her responses to each of the prime ministers. “Operational independence is essential to the legitimacy of the central bank and the effectiveness of monetary policy as a means of achieving price stability. »
The governor’s caution, however, appears to have been overridden by Ontario Premier Doug Ford, who once again sent a letter urging the central bank not to raise interest rates as it prepares to deliver another announcement this Wednesday. On Sunday, Mr. Ford posted a letter dated October 22 on X, the platform formerly known as Twitter.
The Bank of Canada is widely expected to keep its key interest rate steady this week as the economy weakens and inflation slows. The latest monthly inflation data, released last week, showed that price growth slowed to 3.8% in September; it was better than many economists predicted.
The exchange between Tiff Macklem and the provincial premiers is the latest example of the increased political scrutiny the Bank of Canada faces for its policy decisions after the COVID-19 pandemic, as Canada faced its levels of highest inflation rates in 40 years.
Last year, the leader of the Conservative Party (PCC), Pierre Poilievre, pledged, if elected, to fire Tiff Macklem, accusing the central bank of being responsible for the rise in inflation.
Meanwhile, the New Democratic Party (NDP) has spoken out against interest rate increases and recently suggested the federal government could ask the Bank of Canada to stop raising them.
Finance Minister Chrystia Freeland also came under fire last month for saying the Bank of Canada’s decision to keep its benchmark rate steady was a “welcome relief for Canadians.”
At a press conference earlier this month, Tiff Macklem said the disruption from rising interest rates in the political and public spheres were symptoms of high inflation. “Unfortunately, I think what you’re seeing is exactly the effect of inflation. Inflation erodes trust in institutions, it erodes trust in governments. This makes people feel ripped off. We see more strikes in this country, you see more strikes in other countries. These are symptoms of inflation,” he declared.
Restoring price stability is the best way to resolve these problems, the governor said at the time, while acknowledging that achieving this would not be easy and would cause financial hardship for families.