“I don’t think financial policy in Canada is in a situation where it’s unsustainable," Macklem said. — Reuters
OTTAWA: The Bank of Canada (BoC) says higher interest rates and low growth will impact the federal government’s budget spending and although the country’s financial position is sustainable, expenditure should be contained to protect social programmes.
“Lower growth and higher interest rates will certainly impact the government’s budget,” governor Tiff Macklem told lawmakers in the House of Commons.
“I don’t think financial policy in Canada is in a situation where it’s unsustainable. But I do think protecting our very good financial position is important” for social programmes and prosperity, he said.
Macklem said that Canada had the lowest debt-to-gross domestic product ratio among the Group of Seven industrialised economies.
Finance Minister Chrystia Freeland is due to release the government’s Fall Economic Statement (FES), which updates financial and economic forecasts and often includes new spending.
She has said the FES will contain measures to help alleviate the housing crisis and cost-of-living issues while being financially responsible.
Macklem also reiterated his message from last week, when the bank left its key overnight rate unchanged at a 22-year-high of 5%.
“We held our policy rate steady (last week) because monetary policy is working to cool the economy and relieve price pressures, and we want to give it time to do its job,” Macklem said.
“We will continue to assess whether monetary policy is sufficiently restrictive to restore price stability, and we will monitor risks closely,” he added.
The bank said price risks were on the rise and inflation could exceed its 2% target for another two years.
The bank increased rates 10 times between March 2022 and this July to tame inflation, which peaked at a four-decade high of 8.1% last year. It has since come down, hitting 3.8% in September, but it remains way above the bank’s 2% target.
“We made a lot of progress reducing inflation, but we need to stay the course,” Macklem said. — Reuters
