The Bank of Canada, an independent institution responsible for maintaining a two per cent inflation target, is facing calls from provincial premiers to halt its rate hikes. On Sunday, Ontario Premier Doug Ford (NYSE:F) and British Columbia Premier David Eby, who had sent a similar letter on Thursday, urged the central bank to reconsider its approach. Both premiers expressed concerns about the impact of further rate hikes on families and businesses.
The central bank has been aggressively raising interest rates since March 2022 to control decades-high inflation and had made increases in its last two meetings in June and July 2023, responding to a heated economy. However, signs of an economic slowdown have emerged over the summer with a rising unemployment rate and an unexpected contraction in the real gross domestic product in the second quarter. These developments have led most forecasters to predict that the bank will hold its key interest rate steady at 5.0 per cent, its highest level since 2001, in its decision on Wednesday.
Christopher Ragan, associate professor and founding director of McGill University's Max Bell School of Public Policy, commented on the premiers' letters. He described their actions as "unfortunate," adding that they bring a political element into monetary policy decisions which should ideally be independent of government influence.
In comments carried by The Canadian Press, Ragan also mentioned that while monetary policy should not be immune from criticism, history shows that central banks not independent from government are more likely to make policy choices that fuel inflation. He suggested that elected officials should focus on debating the Bank of Canada's mandate rather than its day-to-day operations.
The Bank of Canada's operations and policies have faced criticism from various quarters over the past few years. Conservative Leader Pierre Poilievre has criticized the bank's response to the COVID-19 pandemic and pledged to remove Governor Tiff Macklem if his party forms government. NDP Leader Jagmeet Singh has also critiqued the bank's approach to inflation, describing its key interest rate as a "blunt" instrument. These political critiques have raised concerns about potential interference in the Bank of Canada's policies and prompted questions about how elected officials should discuss the central bank's policies.
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