Finance Committee on Nov. 23rd, 2022

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Okay. That would be great.

[Tiff Macklem]

—if you have a specific calculation you're looking for.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Basically, it's cumulatively. If the bank is acting as the selling agent and simultaneously buying it back, the scenario is very probable that a big Canadian bank could have bought a government bond from you and sold it back to you. I don't know that the banks do anything for free, so I would be interested if.... It's like what they do with currency swaps: When you buy a $100 American bill, you can turn it right back and flip it and there would be a difference.

If you could give us a cumulative—

[Tiff Macklem]

We could give you the average spread with the average volume, or something like that.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Fantastic.

One other thing I would like to see is if you could commit to providing the committee some information on the justification for the rate increase as it relates to cooling demand. You have raised interest rates several times now. They're monster hikes that are now cascading through the economy in everything from lines of credit to mortgage renewals. You have indicated they hit low-income Canadians the hardest. We all know the suffering Canadians are experiencing right now.

You have also said today that the reason for that inflation is the gap between the demand and the supply. You have indicated that supply has fallen and demand has skyrocketed, so we should be able to see some data. We should be able to see some metrics that you can use to justify that. Can you provide this committee with examples of declines in production and declines in output, and corresponding increases in the volume of sales? It's not dollar amounts, but the volume of sales.

If what you have said is true, we should either see massive drops in outputs—forestry companies producing far less lumber, farmers producing less food—or corresponding huge hikes in the volume of sales at retailers and wholesalers, and things like that. Could you provide the committee the data that you used to justify your interest rate hikes?

[Tiff Macklem]

We have a wide range of data. Most of it is published in our monetary policy report and on our website. I'll take some specific examples that you referred to.

On the supply side, you can't observe the supply of the economy directly, just like you can't observe where maximum sustainable employment is in the labour market. You can't observe that directly. On the supply side, what you can observe is a whole range of indicators, including delivery times, shipping costs and transportation costs. We have a whole range of indicators. What they show is that supply chains have been very gummed up. They're starting to improve. We can certainly give you those.

On the demand side, yes, you can see the strength of demand, particularly more recently. First, as I mentioned, is goods. More recently, you can see the strong demand for services.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Would you have that in terms of the volume of units being moved and sold?

[Tiff Macklem]

We don't create this data ourselves. Statistics Canada, our statistical agency, publishes a wide range of data, and there are other sources of data we use. Particularly, through the pandemic, we've been using some different measures like mobility indices.

Yes, we can give you all of that.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

I would just hope that there would be some specific data points, even if they are from other agencies. We don't expect the bank itself to have this kind of—

[Tiff Macklem]

We do have our own surveys, and we can certainly share them as well.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

For example, Statistics Canada in September indicated that, in terms of volume of sales, retail sales declined, yet inflation continued. There was still a higher than target inflation rate in September.

I hope that you weren't just guessing the reason for these price increases. I understand that you refuse to bear any responsibility as it relates to the quantitative easing that you initiated at the bank as a cause of that problem. I understand why you wouldn't want to do that. Hopefully, you didn't just look at the economy and say, “Well, we guess it's a drop in supply, and we estimate that it's an increase in demand.”

I hope that you would have some very specific numbers to justify the rate hikes. That is having a very real impact on Canadians. You should be able to show your work to justify the decisions that you've made.

[The Chair, Liberal, Peter Fonseca]

Give a very short answer.

[Tiff Macklem]

I can assure you, we have a lot of analysis, and we'd be happy to share it with the committee.

[The Chair, Liberal, Peter Fonseca]

Thank you, Governor.

Thank you, MP Scheer.

We're moving to the Liberals and MP MacDonald for five minutes, please.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

Is there anything else you want to add? You were cut off there.

[Tiff Macklem]

Maybe I'll just come back on QE, because I know there's a lot of interest.

We will take full responsibility for our monetary policy actions.

What I want to stress is that there's nothing particularly special about QE. When you look through history, sometimes QE has been followed by inflation—we're seeing that now—and other times it has not. After the global financial crisis, the Fed embarked in large amounts of quantitative easing. It was not followed by a big increase in inflation.

If you look right now around the world, two of the countries that have had the biggest increases in their balance sheets are Japan and Switzerland. They have among the lowest inflation. In fact, the reason they've had such big increases in their balance sheet is that they've been trying to fight low inflation. They've been trying to get inflation up, but inflation has been low. What effect monetary stimulus has in your economy is very dependent on the situation in your economy.

I'm certainly not saying that too much monetary stimulus can't cause inflation. What I'm saying is that you do your best to provide the right amount of stimulus in the situation.

[Heath MacDonald, Liberal, Malpeque, PE]

Yes, you did say that we had the deepest recession and the fastest recovery. It's not doing Canadians any good to say we're at 7%. When you look around the world, stability is in our favour and on our side.

Recently Bloomberg said, “The Bank of Canada’s No. 2 official”—I assume that's you—“said the country’s financial system will be able to weather growing stability risks stemming from higher interest rates and inflation that’s causing hardship for many households.”

Quickly, back to the stress test that the Liberal government brought in and the Conservative government voted against, how is that having a positive effect now on where we're going and what we're seeing with interest rates?

[Carolyn Rogers]

Are you talking about the mortgage stress test?

[Heath MacDonald, Liberal, Malpeque, PE]

That's correct.

[Carolyn Rogers]

The mortgage stress test was actually implemented by the Office of the Superintendent of Financial Institutions. It was designed to make sure that Canadians who were taking out a mortgage at a time when we had historically low interest rates could continue to make their mortgage payments if those rates went up. You'll remember the debate, and as you said, there was.... I remember that at the time the prospect that interest rates would increase by 2% seemed unreasonable.

Now, I think what we have is a macroprudential measure that has sort of helped us weather this period of rising interest rates. It has helped borrowers, and it has helped preserve stability in our financial sector.

[Heath MacDonald, Liberal, Malpeque, PE]

The government recently made targeted investments in doubling the GST tax credit and in a one-time rent fee payment of $500. Would those be the types of investments the Bank of Canada would like to see when we deal with the most vulnerable Canadians? We know the importance of them going forward.

[Tiff Macklem]

The first thing I'll say is that fiscal measures are the responsibility of our elected governments and parliamentarians.

On those specific measures, I do think the advice from the IMF to employ measures that are targeted and temporary is good advice. The GST credit does target the lowest-income Canadians, and it was set up as temporary, so it does meet the hurdle of that advice.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP MacDonald.

Now to the Bloc, MP Ste-Marie, you have two and a half minutes.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

I have some questions about the relationship between the Minister of Finance and the Governor of the Bank of Canada.

The Bank of Canada Act stipulates that “[t]he Minister [of Finance] and the Governor [of the Bank of Canada] shall consult regularly on monetary policy and on its relation to general economic policy.”

If I understand correctly, you usually meet with the Minister of Finance on a weekly basis. You can tell me whether that was the case this fall, once I've finished asking my question.

In the event that the Bank of Canada and the government did not agree on the monetary policy to be followed, the Minister of Finance could give the governor a written directive that the bank would have to comply with. The directive would have to be published, and shortly after it was given, the government would have to lay the directive before Parliament. Thus far, the practice has never been used.

Can you please confirm, first, whether I'm right about that and, second, whether you meet weekly with the Minister of Finance?

[Tiff Macklem]

I would correct you on one thing only. The act stipulates that the minister and the governor should consult often. I'm not sure whether that's the exact wording, but it's something along those lines.