Political noise around the Bank of Canada is intensifying ahead of its interest rate decision on Wednesday, with the leader of the federal NDP calling for the central bank’s role to grow and protect against possible job losses.
Experts and the Liberal government argue the Bank of Canada’s independence is critical to mitigating the upcoming economic turbulence even as questions grow about whether rising interest rates are the right path forward.
NDP Leader Jagmeet Singh did assert Tuesday that the Bank of Canada must remain independent but added that the bank’s policymakers should also look to minimize job losses in a possible recession.
Singh told reporters Tuesday that the central bank’s aggressive interest rate hikes aimed at tackling high inflation fail to protect workers.
The bank’s policy rate has jumped three percentage points this year and is expected to rise again on Wednesday. Rising interest rates intentionally take steam out of the economy in hopes of lowering demand and easing inflation, but come alongside growing calls for a possible recession next year as the global economic picture darkens.
“The aggressive sharp increase in interest rates does mean people are going to hurt. Put bluntly, it’s going to mean a very likely recession where hundreds of thousands of Canadians are going to lose their jobs,” Singh said Tuesday.
His comments come following media interviews over the weekend in which he criticized the central bank’s approach to tackling inflation.
The leader of the federal NDP told CTV’s Question Period on Sunday that there is “absolutely no merit” to the Bank of Canada’s rate-hike strategy as Canadian wages have not kept pace with surging price growth, as was the case in previous inflationary periods.
Singh clarified Tuesday that the NDP “believe fundamentally in the institution’s independence” but called for an expansion to the government-set mandate for the central bank.
“The inflation target alone can’t be the mandate. It should also consider maximum employment,” he said.
The Bank of Canada’s current mandate, renewed in December 2021, focuses on price stability and making sure inflation is low, stable and predictable with a target of two per cent. The mandate does include language to consider “maximum sustainable employment” in the bank’s decision making but it is not a primary goal.
Singh noted that some of the most acute inflation pains such as food and gas prices are not affected by the Bank of Canada’s policy rate. A possible economic downturn would be a “self-inflicted recession,” he added.
Singh called on the Liberal government to expand the Employment Insurance (EI) program ahead of a possible recession, introduce a corporate windfall tax and waive GST on home heating this winter to make the cost of living more affordable for Canadians.
“Our concern is the government of Canada is again sitting back and accepting that a recession is inevitable,” he said.
“We need to focus on some of the things that Canada can control.”
Speaking to reporters on Tuesday, Finance Minister and Deputy Prime Minister Chrystia Freeland acknowledged that “rising interest rates are posing another set of challenges” for households already struggling to get by.
But she reiterated that the government will keep its focus on “targeted, fiscally responsible support to the Canadians who need it most” such as the doubling of the GST credit that passed into law last week.
“At the same time … we really understand the value of not pouring fuel on the flames of inflation and of not making the Bank of Canada’s very tough job even harder,” Freeland said.
Growing political tension over Bank of Canada
Singh is not the only political leader to levy criticism against the Bank of Canada in recent months.
While campaigning for the Conservative Party’s top job this past spring, now-leader Pierre Poilievre said he would fire Governor Tiff Macklem from his post at the central bank if he became prime minister, a move which many said would violate the independent, arm’s length nature of the bank.
Kevin Page, Canada’s former parliamentary budget officer, told The West Block at the time that a government removing a central banker from his post like that would send a “global financial shockwave” through the world economy.
Freeland on Tuesday identified the Bank of Canada’s independence as critical for “institutional stability.”
“I really do believe we’re in a very challenging time economically in Canada and also in the world. All you have to do is look across the Atlantic to see how important, in challenging moments like today, institutional stability is for a country,” she said.
Countries such as the United Kingdom. have seen political turmoil in recent weeks over the economy. Liz Truss resigned as prime minister last week following weeks of controversy over her economic plan.
Nelson Wiseman, professor emeritus of political science at the University of Toronto, told Global News in an interview on Tuesday that attacks on the Bank of Canada could send the country down a similar path to the U.K.
“It’s important that Canada not melt in the way that Britain seemed to be melting a few weeks ago,” he said.
“Attacking the Bank of Canada, or undermining it, unfortunately could lead to that kind of result.”
Political discourse around the cost of living and interest rate increases has intensified in recent months, with the Conservatives blaming the Liberal government for what Macklem himself says are increasingly domestically driven sources of inflation.
The NDP, meanwhile, has called for investigations into grocery store profits during the inflationary period as food prices rise at a pace not seen in 41 years.
While Wiseman backed Singh’s comments that much of Canada’s inflationary pressures are still tied to global forces and not subject to its central bank rate hikes, he added that there’s little Macklem and the other governors can do as central banks around the world raise rates as well.
Stepping out of line would crater the value of the Canadian loonie and ultimately worsen inflation on every import coming into Canada’s border, he said.
Wiseman said that there’s likely a lack of understanding about the Bank of Canada and the effect of interest rates on inflation and the economy more widely. But he added that Canadians likely understand that the war in Ukraine and supply chain issues in China are a significant cause of inflation and ones beyond the scope of either the government or central bank to address.
“It isn’t something that little old Canada … can actually solve on its own,” he said.
“The answer isn’t to get in there with a big political spoon and stir things up.”
— with files from Global News’s Amanda Connolly