Macklem emphasizes the importance of a two per cent inflation target

Bank of Canada Governor Tiff Macklem faced tough questions from Canadian senators on Wednesday regarding the central bank’s inflation target. The senators questioned whether the Bank of Canada should consider changing its inflation target to provide relief to Canadians facing high mortgage rates.

During the hearing at the Senate’s banking, commerce, and economy committee in Ottawa, Committee chair Pamela Wallin asked Macklem why the central bank doesn’t raise the inflation target to three percent, closer to the current inflation rate. Macklem defended the two percent target, stating that changing the target arbitrarily would undermine the credibility of the central bank.

Macklem emphasized the importance of the inflation target as a benchmark for setting interest rates, especially in times of economic uncertainty. He highlighted the role of the target in anchoring expectations and ensuring price stability.

The central bank officials also discussed the challenges posed by demographic shifts, rising geopolitical tensions, and productivity issues in Canada. They emphasized the need for policy actions at all levels of government and in the private sector to address these challenges.

Additionally, the senators raised concerns about the impact of monetary policy on the housing market and questioned the central bankers about the potential risks associated with the renewal of mortgages at higher interest rates. Rogers reassured the senators that Canadians are managing the higher rates well, and the data does not indicate a mortgage crisis.

Overall, the hearing provided insights into the Bank of Canada’s approach to monetary policy and its commitment to maintaining price stability while navigating economic challenges.