Interest rates need to rise to fight inflation, Tiff Macklem told MPs

In this article, you will get all the information regarding Interest rates need to rise to fight inflation, Tiff Macklem told MPs

Bank of Canada Governor Tiff Macklem is expected to appear before the House of Commons Finance Committee in Ottawa on Nov. 23.Adrian Wilde / The Canadian Press

MPs questioned Bank of Canada Governor Tiff McCollum on Wednesday about inflation and historic financial losses at the central bank, with top opposition politicians seeking to frame the bank’s continued dilemma to their political advantage.

Mr. Macklem used his appearance before the Finance Committee in Ottawa to reiterate the central bank’s key message: inflation remains too high and interest rates must rise.

The Bank of Canada has raised interest rates six times this year, and is expected to announce another rate hike on December 7.

The most important questions for Mr McCullum came from New Democrat leader Jagmeet Singh and former Conservative Party leader Andrew Shear. Neither politician is a regular member of the Finance Committee and their presence highlights how central monetary policy has become a political debate.

The Bank of Canada is poised to lose money for the first time on rising interest costs

Can you afford a variable rate mortgage? How to Create Your Own Financial Fitness Test

Mr Singh pressed Mr Macklem on the impact of corporate profits on inflation. Unions and left-wing politicians have argued in recent months that the central bank is putting too much emphasis on wages to drive up inflation, and not enough on corporate greed.

Mr Macklem acknowledged that companies were passing on increasing costs to consumers in relative comfort, which allowed them to protect profit margins. But he said businesses expect savings to be passed on to customers as input costs fall.

“Overall, if you look at profits as a share of GDP, they’ve gone up,” Mr Macklem said. “A big part of that is oil prices, fuel prices have gone up a lot. In the energy sector, input prices have not increased as much as selling prices, and so their profits have increased.”

The Conservatives, led by Mr. Shear, dialed the Bank of Canada to lose money for the first time in its 87-year history. The central bank’s balance sheet expanded greatly during the pandemic, as a result of its government bond-buying program, also known as quantitative easing or QE. Now the rapid rise in interest rates has created a mismatch in its balance sheet.

The bank is paying higher interest rates on about $200-billion worth of commercial bank deposits held at the central bank than on government bonds it bought during the pandemic, leading to a net interest loss. It estimates it will lose $5-billion to $6-billion over the next year or two before returning to profit in 2024 or 2025.

Since the bank is not allowed to retain its earnings and does not have a reserve fund, the finance department has to decide whether to cover the bank’s losses directly or come up with some other method that allows it to cover the losses. Once it returns to profitability.

The Conservatives have long criticized the bank’s QE programme, and Mr Shear said the central bank appeared to need a “bailout”. Mr Macklem said it was largely an “accounting problem” and pointed to various solutions devised by other central banks.

“Whatever solution is chosen, it will not affect the way we conduct monetary policy,” he said.

Mr Macklem stayed on script through appearances, arguing that more needed to be done to bring inflation under control. He said the economy is overheating as demand for goods and services outstrips supply and companies can’t find enough workers.

Inflation has eased in recent months. Annual consumer price index inflation was 6.9 percent in October, down from a peak of 8.1 percent in June. But inflation is still more than three times the central bank’s 2-percent inflation target.

After six interest rate hikes this year, the key question is how far the bank wants to go. Financial markets are betting on another quarter-point move at the December meeting, followed by another quarter-point move in January. That would bring the bank’s benchmark interest rate to 4.25 percent early next year, where markets expect the central bank to pause.

“We’re trying to balance the risk of under and over Titan,” Mr Macklem said. “This tight phase will end. We’re getting closer, but we’re not there yet.”

Interest rates need to rise to fight inflation, Tiff Macklem told MPs

For more visit ReportedCrime.com

Latest News by ReportedCrime.com

Leave a Comment

%d bloggers like this: