Trudeau’s finance chief has defended the Bank of Canada ahead of the hike
(Bloomberg) — Finance Minister Chrystia Freeland defended the independence of the Bank of Canada after the main left-wing opposition party joined the Conservatives in criticizing its history.
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“Canada is a country of peace, order and good government,” Freeland told reporters Tuesday on his way to a cabinet meeting. “Institutional stability is deeply embedded in the independence of the Bank of Canada. Our government deeply respects the independence of the Bank of Canada.”
Over the weekend, New Democratic Party leader Jagmeet Singh told CTV News that Gov. Tiff Macklem’s interest rate hike has no merit and called on the Liberal government to do more to cushion the blow from inflation.
Singh also wrote directly to Prime Minister Justin Trudeau, decrying recent changes to the government’s mandate with the central bank, which added labor market conditions as a secondary consideration to price stability.
Freeland acknowledged the increasingly difficult circumstances facing Canadians. His comments, a day before Macklem is expected to deliver his fifth major interest rate hike in a row, show that monetary policy is becoming politicized.
“Inflation is too high, life is too hard for many people, and rising interest rates pose other challenges,” he said. “People are worried about their mortgages.”
But he gave no indication that the government would add to the spending target it announced in September. Those measures include a temporary doubling of the sales tax credit for low-income people, a one-time supplement for renters who can’t pay their bills, and new dental care coverage for uninsured children.
“We really think it’s important to take a fiscally responsible approach right now,” the finance minister said. “We really understand the value of not adding fuel to the flames of inflation and the value of not making the very hard job of the Bank of Canada even harder.”
While Singh acknowledged the importance of central bank independence, his comments increase pressure from both the government and Macklem. Earlier this year, the NDP agreed to support the Liberals in a minority parliament until 2025 in exchange for more social spending.
The Bank of Canada is also taking heat on the other side of the political spectrum. Conservatives are vowing “ruthless scrutiny” of the governor, who has threatened to oust the party’s new leader for helping push inflation to multi-decade levels.
Macklem and his officials have increased borrowing costs by three percentage points since March. Another 75 basis points increase is expected on Wednesday, bringing the benchmark lending rate to 4% today, the highest since March 2008.
Liberals are also starting to criticize the central bank.
Tyler Meredith, who until last month was Freeland’s director of economic strategy, publicly called on Mackle to show “flexibility” and take off the brakes. “There is ample evidence that the Bank of Canada is starting to slow and potentially pause. They should take note,” the former aide wrote in an op-ed for The Globe and Mail on Tuesday.
Speaking in an interview with Bloomberg last week, Meredith warned that inflation hurts the poor the most, arguing that it risks undermining Trudeau policies that have tried to reduce wealth inequality.
(Updates with letter from Singh to Trudeau and expanded by former Freeland aide.)
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