Evidence of meeting #68 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was inflation.
A video is available from Parliament.
5:50 p.m.
Governor, Bank of Canada
There isn't one Canadian; there is a diversity of Canadians and, yes, some Canadians are really being squeezed. We understand that.
5:50 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Governor.
We like the fulsome answers, and I try to give—
5:50 p.m.
Liberal
The Chair Liberal Peter Fonseca
Yes, that's correct.
Members, we are now moving on to the Conservatives.
I have MP Scheer for five minutes.
5:50 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Thanks very much.
I want to pick up on a point my colleague Ms. Damoff brought up: the idea that there are global shocks and this war in Ukraine affecting prices.
Correct me if I'm wrong, but inflation was already well above the 3% target before the war in Ukraine. Is that correct?
5:50 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
You're telling us that quantitative tightening is part of the solution to inflation. Just so I understand, “quantitative tightening” is when the Bank of Canada allows the bonds it holds to lapse, basically. The bank is retiring that money out of circulation—out of existence. Is that correct?
5:50 p.m.
Governor, Bank of Canada
Yes. What we're doing is allowing the bonds we have on our balance sheet to come to maturity and not purchasing any more, so that balance sheet is shrinking.
5:50 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Okay.
Is the money supply shrinking in correspondence with that?
5:50 p.m.
Governor, Bank of Canada
If you look at broad measures for money—at M2 growth, for example—it has come down considerably, yes. That doesn't just reflect quantitative easing. It also reflects the fact that we have raised interest rates a lot, which tends to reduce money growth, as well.
5:50 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Quantitative tightening retires the money the Bank of Canada created to purchase the bonds, but you are simultaneously saying that quantitative easing, which is the creation of that money to purchase those bonds, had nothing to do with inflation, at all. Quantitative tightening has this magical ability to solve part of the problem—
5:50 p.m.
Conservative
5:50 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Simply, did quantitative easing contribute to inflation, yes or no?
5:50 p.m.
Governor, Bank of Canada
There is nothing uniquely special about QE or QT. They are part of our monetary policy response. They complement our interest rates. If you look at all those things together, yes, we've put a lot of monetary stimulus in place. With the benefit of hindsight, we should have started taking it out earlier. We actually stopped QE more than a year ago.
5:50 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
With the benefit of hindsight, do you wish you had stopped QE earlier?
5:50 p.m.
Governor, Bank of Canada
When we get inflation back down to 2%, I think we are going to need a thorough review of how all our tools worked through this pandemic—
5:55 p.m.
Conservative
5:55 p.m.
Governor, Bank of Canada
—and I'm not saying we got everything right. We didn't get everything right.
5:55 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
I only have a couple of minutes left. I don't mean to cut you off.
5:55 p.m.
Governor, Bank of Canada
I think we got a lot of things right. We have some lessons to learn.
5:55 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
I only have two and a half minutes left, so I have to move on to other topics.
I want to make sure I fully understand the loss, and who's on the hook for that loss.
The Bank of Canada has an obligation to pay, in interest payments, money to the large financial institutions that have accounts at the Bank of Canada. It's now paying more in interest than it's receiving from the Government of Canada for the rate of the bond itself. What you've told the committee is that, barring any legislative change—which is hypothetical—the loss has to be covered by the taxpayers, in real terms.
Is that correct?