If any Canadian government were to fire the head of the Bank of Canada, the result would be a “global financial shock wave,” warned the country’s former budget watchdog.
In an interview with The West Block guest host Eric Sorenson, former parliamentary budget officer Kevin Page said the Bank of Canada’s reputation is one as a “strong” and “transparent” institution.
“We’ve gotten used to, over the past three decades, having an independent central bank that is independent — making decisions on these policy interest rates that is divorced from the political environment,” said Page, now president and CEO of the Institute of Fiscal Studies and Democracy at the University of Ottawa.
“It would be quite a shock wave, a global financial shock wave, to have a government literally remove a central banker who, by all intents, seems to be doing a fine job — but is doing a very difficult job.”
Page had been asked what the effects could be if a Canadian government were to fire a central banker.
That comes as Conservative leadership candidate Pierre Poilievre has been leading a campaign of criticism centring on the Bank of Canada’s handling of rampant inflation, which sits at 6.7 per cent.
The domestic target is two per cent per year.
As part of his criticism of the central bank, Poilievre has vowed that he would fire Tiff Macklem, governor of the Bank of Canada, if elected prime minister. That comment triggered rapid criticism over concerns it signalled an intent by the perceived leadership frontrunner to interfere with the bank.
Long-standing tradition is that the Bank of Canada operates independently of political decisions, with governors appointed on seven-year terms.
Officials have emphasized that those longer terms are what allows them to operate with a “measure of continuity over economic cycles — not electoral cycles — and allows for decision making that considers the long-term economic interests of Canadians.”
The Bank of Canada has opted to keep interest rates at rock-bottom during the COVID-19 pandemic, which is among the factors experts say have fuelled skyrocketing home prices. And as inflation keeps pushing the cost of living higher and higher, critics of the central bank like Poilievre have pointed the finger and argued its low rates are powering domestic inflation.
Canada, however, is far from alone.
Inflation is rampant around the world right now, with no clear end in sight.
High consumer spending amid the lifting of COVID-19 restrictions has combined with supply chain shocks worsened both by factory closures caused by the reality that the virus is still circulating in high numbers, as well as the sharp shortages in supplies caused by Russia’s invasion of Ukraine.
“I think it’s a very simplification to assume that if we just change the leader, that somehow this sort of global environment — and inflation truly is a global issue — just somehow disappears,” Page said.
Sorenson asked: “Can the Bank or the Canadian government on their own bring inflation down in this country?”
Page said: “No.”
“This is a global phenomenon. A lot of it is supply-related, and it’s because of those very strong supports that went in 2020 to help during the lockdown,” he added.
“The economy’s come back really fast and eventually markets will adjust.”
So when might Canadians expect to see inflation back in a more normal range?
Page said the Bank of Canada’s moves to raise interest rates will play a role in helping slow the economy.
“I think over the next couple of years we could see inflation back maybe in that three per cent range.”