In a rare turn of events, the Bank of Canada has become a target of criticism because it misjudged the inflation in the country and ended up locking itself into guidance that was excessively rigid. Thus, this prevented the central bank from responding swiftly when prices began to surge and the economy started to overheat.
Even though the Bank of Canada is one of the major central banks in the world, it now has to play catch-up where inflation is concerned. Therefore, it has been driven to hiking up interest rates a lot more aggressively than it had intended to. Meanwhile, levels of household debts in Canada are reaching new highs, as they have gone beyond other G7 nations.
Since there are now fears of recession, the Bank of Canada is now being criticized by economists, politicians as well as the general public, about how opaque its decision-making process really is. There have also been calls for the central bank to release the minutes of its meetings, something which is a common occurrence in many of its peers.
Bank of Canada Admits Mistakes
The Bank of Canada has accepted that it made a mistake and is also vowing to be more transparent in the future. This includes providing an analysis of the errors they had made in forecasting inflation, which will be shared in July. However, Pierre Poilievre, a Canadian politician, has taken to attacking the central bank on a daily basis.
He is the top contender for leading the Conservative Party in the opposition and accuses the Bank of Canada of being a government puppet and incompetent on social media platforms. He has also said that if he is elected, he would fire Tiff Macklem, the Governor of the central bank. However, it should be noted that the law would have to be changed for this to happen, which highlights just how discontent the politician is.
A Rare Occurrence
Carolyn Rogers, the Senior Deputy Governor of the Bank of Canada, said that there could be more transparency and they were trying to work on it. She said that they were thinking about it a lot. The Canadian central bank last faced such political heat back in the 1990s. Otherwise, it has mostly been independent when it comes to setting policies. Back then, Jean Chretein, who was the leader of the opposition’s Liberal party had gone after Governor John Crow due to the high interest rates.
While Poilievre is not a leader of the opposition as yet, will not become prime minister before the next elections that are due in 2025. However, he has made his attacks at a time when it is vital for the general public to trust the central bank in controlling inflation. Like a number of other central banks, Bank of Canada thought that inflation was transitory and had not begun raising interest rates until March this year. By that time, inflation was already twice more than the 2% target.