Bank of Canada (BoC) governor Tiff Macklem believes that it would be easier to control inflation if monetary and fiscal policies were aligned. Macklem stated that the efforts by the BoC to curb inflation through interest rate hikes have been undermined by increased government spending at all levels. He expressed concern that if government spending continues to outpace economic growth, it could exacerbate inflationary pressures. Macklem emphasized the importance of coordinating monetary and fiscal policies to effectively address inflation.
On October 25, the Bank of Canada chose to maintain its policy interest rate at five percent. Macklem explained that this decision was made in response to clear evidence that higher interest rates were cooling the economy and reducing inflation. However, he also stated that the central bank has not ruled out the possibility of raising interest rates if necessary.
Conservative Leader Pierre Poilievre raised Macklem’s announcement during Question Period on October 25, highlighting three key points from the report. He emphasized that inflationary risks have increased, the central bank is considering raising interest rates again, and government deficits and spending are contributing to inflation and the risk of further interest rate increases. Prime Minister Justin Trudeau responded by criticizing the Conservative stance for advocating austerity measures and budget cuts during a time when Canadians are facing affordability challenges. Poilievre countered by noting that Governor Macklem himself had stated that government spending is driving up inflation.
Trudeau defended the Canadian government’s fiscal management, highlighting the country’s triple A credit rating, lowest deficit, and best debt-to-GDP ratio among G7 nations. He argued against the need for budget cuts proposed by the Conservatives and emphasized the government’s commitment to responsibly supporting Canadians, promoting growth, and maintaining fiscal responsibility.