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MNI INTERVIEW: BOC Should Ease Up On Rate Hikes- Senator

Photo by Jason Hafso on Unsplash

The Bank of Canada must be cautious about further rate hikes that could torpedo the economy after already misreading the early pandemic rebound, a Senate Banking Committee member who will question Governor Tiff Macklem at a hearing Tuesday told MNI.

“We want to ensure that his policy objective is not to drive the economy into the ground where we’ve got massive unemployment and it creates a lot of grief for people,” Senator Hassan Yussuff said in an interview Friday. “There is a worry among people that the aggressiveness at which the Bank has increased rates is going to do some severe damage if we’re not cautious.”

The Senate hearing announced Thursday is part of regular oversight of the Bank and not designed to put Macklem in the political hot seat, though some members may have sharp questions, Yussuff said. The BOC raised rates a less-than-expected 50bps to 3.75% Wednesday and Macklem said that, while borrowing costs must climb further, the end of the cycle is near and he could slow down further in coming meetings. Canada has led G7 central banks with hikes this year including a 100bp move in July.

“This week it looks to me that the Governor at least is heeding some of that response; I think he’s still got his foot somewhere between the gas and the brakes,” Yussuff said.


Part of the response Yussuff refers to is an Oct. 19 call from New Democratic Party Jagmeet Singh for the Bank to avoid a needless recession, an attack that carries weight because the Liberal government needs NDP votes to avoid an early election. The Conservative leader earlier this year said Macklem should be fired, though blaming him instead for loose policy earlier in the recovery.

“There’s an argument can be made that the Bank maybe should have started earlier to ease its policy around quantitative easing,” Yussuff said. “When inflation was increasing, the Bank pronouncement that this was transitory, was going to pass, whatever indicators they were using, they obviously missed some of the signals.”

The Bank recently moved away from one of its three core inflation measures after it missed early signs of a price buildup. Its latest economic outlook pointed to softening in core prices, and the Bank “should really heed its own message," he said.

Source: Bank of Canada Monetary Policy Report

Macklem may still need to keep tough rhetoric about inflation as long as it's unclear CPI is clearly moving back to the 2% target, Yussuff said. “I don’t think they will change their view no matter what’s happening until we see inflation drop to a place where they think OK, we can see the horizon somewhere in the near future” it’s under control, he said.

The Bank is close to the end of hikes, a former adviser told MNI Thursday. (See MNI INTERVIEW: BOC Nearly Done Hiking On Stall Risk-Ex Adviser) Two-year Canada bond yields plunged to 3.84% from 4.16% since the smaller rate hike Wednesday.


Before being appointed to the Senate, Yussuff led one of Canada’s largest union groups and advised the government on NAFTA talks with the Trump administration. He echoed criticism labor leaders made earlier this year around Macklem's suggestion that executives shouldn't lock in plans for big wage hikes for workers.

“The Bank needs to be very sensitive to the fact this is not a one-size-fits all economy, they need to be sensitive to the people who are hurting most, and try to balance the message and not be so hasty criticizing workers,” he said.

The Bank has leeway in its mandate to boost employment and should take more advantage of that flexibility, Yussuff said, because that could help avoid a dangerous rise in bankruptcies from some of the world's most indebted households. The Bank's mandate was changed last year to add language about employment, but only when the inflation mandate is being met.

MNI Ottawa Bureau | +1 613-314-9647 |
MNI Ottawa Bureau | +1 613-314-9647 |

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