Freeland welcomes Bank of Canada rate pause

Canadian finance minister Chrystia Freeland praised the central bank’s decision to hold the policy rate and defended its independence in a statement on September 6.

Freeland’s support of the Bank of Canada came amid growing criticism of its monetary policy from all points on the political spectrum. The central bank had announced its decision to hold the rate at 5% earlier that day.

“The Bank of Canada’s decision to maintain its overnight interest rate is welcome relief for Canadians,“ said Freeland, a member of prime minister Justin Trudeau’s Liberal government. She added: “I fully respect the independence of the Bank of Canada as it delivers on its mandate to return inflation to target”.

A regional premier from the Liberal party has been one of the public critics of the central bank and its governor Tiff Macklem. A journalist at Freeland’s press conference asked her if it was appropriate for politicians to seek to influence the BoC’s monetary policy.

The Bank of Canada's decision to maintain its overnight interest rate is welcome relief for Canadians

Chrystia Freeland, Canadian finance minister

“I have a very specific job and a very specific role ... I'm the finance minister," CBC reported Freeland as saying. "That means it's really incumbent on me to support the independence of the Bank of Canada."

Since February 2022, the BoC has raised the reference rate by 475 basis points. Policy-makers briefly paused the tightening cycle at 4.5% between January and June 2023, before adding two 25bp hikes in June and July.

Consumer-price inflation peaked at 8.1% in June 2022, more than four times the central bank’s 2% target. Inflation has since fallen, but remains above the 2% mark. In July, year-on-year inflation rose by half a percentage point to 3.3%.

Shortly before the September meeting, the premiers of the provinces of Ontario, British Columbia, and Newfoundland and Labrador wrote to Macklem urging him not to raise rates further.

The three premiers represent different parties from various parts of the political spectrum. Newfoundland premier Andrew Furey is a member of the Liberal Party, while British Columbia’s David Eby is in the social-democratic New Democratic Party and Ontario’s Doug Ford is a Progressive Conservative, a provincial party separate from the federal Conservatives.

On September 6, Jagmeet Singh, leader of the NDP, urged the federal government to press the central bank to ease credit conditions.

“It's time for Justin Trudeau, whose government sets the mandate for the Bank of Canada, to clearly give the message that policies that hurt workers and hurt families are wrong,” he said.

The leader of the federal Conservative Party, Pierre Poilievre, has also attacked the central bank, accusing it of using QE to fund federal government deficits, and has said he wants to dismiss Macklem should he become prime minister.

Freeland said on September 6 that Poilievre’s calls to remove Macklem “are absolutely reckless”.

Trudeau’s government appointed Macklem to a seven-year term in 2020. The next elections will take place no later than October 2025.