MNI: Tighter Canada Budget Would Help BOC Inflation Fight: IMF
The IMF urged Canada to tighten fiscal policy to help the central bank cool inflation, stepping into the middle of a major fight ahead of next year's election, while recommending one answer is raising the federal sales tax that has been a political nonstarter since it was lowered in 2006.
"Some additional fiscal consolidation would not only help stabilize inflation but also help to restore fiscal space that was used during the pandemic," according to the IMF's annual staff review published Tuesday. "Debt remains low in international comparison, but further consolidation will put Canada in a stronger position to address future downturns as well as structural spending needs."
The IMF called for austerity even while agreeing with the BOC's decision last week to lower interest rates and the forecast of inflation returning to 2% next year, with staff saying that would happen early in 2025. The IMF, which in the past called the BOC one of the least transparent central banks, said that after some improvements it could also be good to publish a "forecast-consistent policy rate path" and explaining how fast it could return to a neutral rate. (See: MNI INTERVIEW: BOC Seen Cutting Again In Sept-Conference Board)