Addressing Supply Issues Not Substitute for Rate Hikes, Says Bank of Canada Official

Tiff Macklem, Governor of the Bank of Canada is seen at the Bank of Canada in Ottawa, on Oct. 26, 2022. The Canadian Press/Sean Kilpatrick

Bank of Canada senior deputy governor Carolyn Rogers says addressing supply problems could help ease inflationary pressures but such policies wouldn’t substitute the need for higher interest rates.

Rogers and Bank of Canada governor Tiff Macklem appeared before the Senate banking committee Tuesday evening and responded to questions from senators about the bank’s monetary policy and the state of the economy.

In his opening remarks, Macklem reiterated the need for higher interest rates to cool inflation but said the end of the monetary policy tightening cycle was drawing closer to an end.

“If we don’t do enough, Canadians will continue to endure the hardship of high inflation,” Macklem said.

The officials were asked whether the government could play a role in fighting high inflation, and in response, Rogers said policies that address supply issues would help reduce inflation.

Rogers added that such policies, however, would be complementary to interest rate hikes and not substitutes.

“We need to do our job, other policymakers need to do their job,” she said.

Last week, the central bank raised interest rates for the sixth consecutive time this year, raising its key interest rate by half a percentage point and indicating rates would have to rise further.

Canada’s annual inflation rate was 6.9 percent in September but has been steadily declining since reaching its highest rate this year of 8.1 percent in June.

The Bank of Canada also released its latest monetary policy report last week, which suggested the Canadian economy is headed for a significant slowdown toward the end of the year and into the first half of 2023.

Bank of Canada officials are typically called in to testify following the release of the April and October monetary policy reports.