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Next Bank of Canada governor would stay focused on fighting inflation: Poilievre

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Next Bank of Canada governor would stay focused on fighting inflation: Poilievre

Conservative Leader Pierre Poilievre says his choice for the Next Bank of Canada governorwould be someone focused entirely on keeping annual inflation at its two per cent target.

The Opposition leader made the comments on Friday as he stood by the promise he made during the Conservative leadership campaign to fire the current central bank governor, Tiff Macklem, should he become prime minister.

“He will be replaced with someone who has experience in the central banking system that will have as his or her singular objective to keep inflation at the two per cent target while protecting financial stability,” Poilievre said during an end-of-year news conference on Parliament Hill.

“I think that is a reasonable thing to request.”

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Poilievre added that a Conservative government would cut spending and reduce the deficit to help bring down inflation so that higher interest rates are no longer necessary, while leaving monetary policy up to the independent central bank.

“The right policy — and the one that I would implement — is to bring the deficits down, and in the process, bring inflation down,” Poilievre said. “Right now, the cost of government is increasing the cost of living.”

Appointed to a seven-year term as head of the Bank of Canada in June 2020, Macklem has become a key target for Poilievre, first during his run for the Conservative leadership, and now in his push to become prime minister.

That has come as Canadians have spent most of the past year grappling with the highest levels of inflation seen in nearly 40 years, with the rising cost of living associated with more expensive groceries and other goods exacerbating pre-existing affordability concerns.

Experts have blamed a slew of factors, including global events such as Russia’s invasion of Ukraine and supply-chain disruptions.

But there’s also been increasing focus on domestic factors, including fiscal and monetary stimulus during the pandemic.

The federal government responded to COVID-19 with a range of pandemic support programs that delivered billions of dollars to people and businesses to mitigate financial losses from lockdowns.

The Bank of Canada also injected stimulus into the economy by slashing interest rates to near zero and buying up government bonds to lower rates even further and encourage spending, a strategy followed by other central banks worldwide.

That stimulus was likely excessive, the Bank of Canada now acknowledges.

Poilievre said his beef with Macklem is not with the Bank of Canada governor’s monetary policy, which involves setting interest rates to help keep inflation under control.

He instead argued that Macklem strayed into fiscal policy by “printing money” to buy government bonds, which he characterized as support for Liberal spending during the COVID-19 pandemic.

“He’s supposed to be in charge of monetary policy and not fiscal policy,” Poilievre said. “And he printed the money to fund those deficits, and he did so in an inflationary environment. And that is why I believe he needs to be replaced.”

Poilievre also criticized Macklem for having promised in July 2020 that interest rates would remain “low for a long time.” The Conservative leader said that led many Canadians to take on large mortgages that they no longer afford.

The Bank of Canada has raised interest rates seven times this year in an attempt to get skyrocketing inflation under control. The central bank’s benchmark interest rate is currently at 4.25 per cent, compared to 0.25 per cent in July 2020.

This report by The Canadian Press was first published Dec. 30, 2022.

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Russia is pushing its central bank to give 'upbeat' economic updates – Business Insider

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Russia is pushing its central bank to give ‘upbeat’ economic updates  Business Insider

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Biden highlights economy, spars with Republicans in State of the Union speech – Global News

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Given high inflation, slowdown in Canada’s economy is ‘a good thing,’ Tiff Macklem says

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Bank of Canada governor Tiff Macklem says that although a slowing economy may not seem like a good thing, it is when the economy is overheated.

Speaking in Quebec City on Tuesday, Macklem said that higher interest rates are working to cool the economy as elevated borrowing costs are constraining spending on big-ticket items such as vehicles, furniture and appliances.

As demand for goods and services falls, Macklem says the economy will continue to slow.

“That doesn’t sound like a good thing, but when the economy is overheated, it is,” he said.

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In addition to global events, the overheated domestic economy pushed up prices rapidly, he said.

To slow the economy domestically, the Bank of Canada has embarked on one of the fastest monetary policy tightening cycles in its history. It has hiked its key interest rate eight consecutive times since March, bringing it from near-zero to 4.5 per cent.

However, last month, the Bank of Canada said it will take a “conditional” pause to assess the effects of higher interest rates on the economy.

“Typically, we don’t see the full effects of changes in our overnight rate for 18 to 24 months,” Macklem said on Tuesday.

“In other words, we shouldn’t keep raising rates until inflation is back to two per cent.”

However, the governor said the Bank of Canada will be ready to raise rates further if inflation proves to be more stubborn than expected.

Bank of Canada hikes interest rates again to 4.5%

The Bank of Canada is raising interest rates again, bumping it to 4.5 per cent. This marks the eighth increase in less than a year, leaving some homeowners scrambling to keep their mortgages.

As gas prices have fallen and supply chains have improved, inflation in Canada has slowed since peaking at 8.1 per cent in the summer. Macklem called this a “welcome development,” but stressed inflation is still too high.

“If new data are broadly in line with our forecast and inflation comes down as predicted, then we won’t need to raise rates further,” Macklem said.

For inflation to get back to two per cent, Macklem said wage growth will have to slow, along with other prices.

Wage gains lagging inflation

Wages have been growing rapidly for months but continue to lag the rate of inflation. In December, wages were up 5.1 per cent.

Though annual inflation is still at decades-high levels, economists have been encouraged by a more noticeable slowdown in price growth over recent months.

The Bank of Canada forecasts the annual inflation rate will fall to three per cent by mid-year and to two per cent in 2024.

Royce Mendes, an economist with Desjardins, said that Macklem is crossing his fingers that the rate hikes he has implemented so far will be enough to get it done.

“The head of the Bank of Canada seems quite comfortable sitting on the sidelines even as his U.S. counterpart will be discussing the need for further monetary tightening south of the border,” Mendes said.

 

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