Canadians Should ‘Trust’ Central Bank Will Rein In Inflation, Says Finance Minister

The Bank of Canada in Ottawa in a file photo. The Canadian Press/Sean Kilpatrick

Deputy Prime Minister and Finance Minister Chrystia Freeland said on Sept. 7 that Canadians should have “trust” in the Bank of Canada to tackle inflation after it announced another rate hike earlier that day.

“From my perspective, now more than ever is a time for Canadians to build social trust with each other and to have trust and confidence in Canada’s fundamental governing institutions,” Freeland said while in Vancouver to attend the Liberals’ cabinet retreat.

“And one of Canada’s fundamental institutions is the Bank of Canada.”

Freeland said that Canada still has strong institutions, as well as public trust in governing institutions, despite the “global storms” in the last two years like COVID-19 and Russia’s invasion of Ukraine.

“It’s not my job to do the bank’s job and I do think it’s important for Canadians to recognize that the bank has the mandate, and the tools, and the expertise to tackle inflation, which is elevated today,” she said.

When questioned as to whether the rate hikes were the right approach to tackling inflation, Freeland said she recognizes the independence of the Bank of Canada (BoC) and would not “jeopardize” that.

The BoC announced a 0.75 percent rate hike this week, taking the country’s policy interest rate to 3.25 percent. That is a 3-percentage-point increase since the BoC started its bid to cool inflation in March when the rate was at 0.25 percent.

Before the pandemic, the rate was at 1.75 percent and was taken down to 0.25 percent after rapid successive cuts in March 2020.

Criticism

Freeland’s comments about respecting Canada’s institutions seem to be a veiled criticism directed at Conservative Party MP and leadership contender Pierre Poilievre.

Poilievre has said while campaigning that he would fire BoC Governor Tiff Macklem if elected prime minister over his management of inflation.

Macklem, like other central bankers, initially downplayed rising prices.

Citing different factors caused by the pandemic driving prices higher, Macklem wrote in the Financial Post in July 2021 that “none of them are likely to last.”

“So, we shouldn’t overreact to these temporary price increases,” he wrote. “Inflation should move back inside our target range next year as businesses work through these temporary factors and the people who lost their jobs during the pandemic rejoin the workforce.”

Reacting to the latest rate hike, Poilievre said in a statement that “Trudeau’s inflationary deficits - with the Bank of Canada acting as his ATM - sent a half-trillion dollars out to bid up the costs of goods.”

The BoC has pushed back on the assertion that it’s been “printing money.”

The BoC wrote on Twitter in late August that it was not printing “cash,” explaining it used what is called Quantitative Easing to increase the money supply.

“We bought existing gov’t bonds from banks on the open market. Why? This helped unblock frozen markets at the start of the pandemic. It let households, companies and governments access funding when they really needed it,” wrote the BoC.