Evidence of meeting #31 for Public Accounts in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was losses.
A video is available from Parliament.
Conservative
The Chair Conservative John Williamson
I understand. Thank you very much.
We will begin our next round, which consists of five members with various times, with Mr. Kuruc.
Mr. Kuruc, kick us off, please. You have five minutes.
Conservative
Ned Kuruc Conservative Hamilton East—Stoney Creek, ON
Thank you.
I appreciate all the witnesses coming in today.
When the government runs large consecutive deficits and is projecting another big deficit in the budget that was passed, that puts more money into the economy and drives inflation. Is that correct?
Managing Director and Chief Financial Officer, Bank of Canada
That is a monetary policy question, which I'm not an expert in.
Conservative
Ned Kuruc Conservative Hamilton East—Stoney Creek, ON
Fair enough. Thank you.
By your explanation, the bank currently.... Well, it's holding billions in losses, but largely because of the higher interest rate on reserves while holding low-rate bonds. Is that correct?
Conservative
Ned Kuruc Conservative Hamilton East—Stoney Creek, ON
This is necessary to bring down inflation. Is that correct?
Managing Director and Chief Financial Officer, Bank of Canada
The interest rate is a decision of monetary policy, yes.
Conservative
Ned Kuruc Conservative Hamilton East—Stoney Creek, ON
Okay.
Is it correct that while the government runs deficits and inflation increases, the Bank of Canada needs to run higher interest rates to be profitable, I guess, or...?
Managing Director and Chief Financial Officer, Bank of Canada
I'm not comfortable answering the question. I'm not sure I follow, because that's not my area of expertise. I'm not sure I understand your question.
Conservative
The Chair Conservative John Williamson
You're on the right track. That is economics 101. Yes, the bank would run higher interest rates to combat inflation.
Conservative
Ned Kuruc Conservative Hamilton East—Stoney Creek, ON
Yes. That's what I'm....
I'm sorry. I thought I had asked a pretty simple question. If the government runs deficits and inflation increases, the Bank of Canada needs higher....
Would Ms. Corbett be able to answer that?
Managing Director and Chief Financial Officer, Bank of Canada
Your question is really for the governor and the senior deputy governor, not for us. We're not involved in those decisions or why we would do one or the other.
Conservative
Ned Kuruc Conservative Hamilton East—Stoney Creek, ON
I was just going based off your explanation earlier. I was under the impression that you could fill us in with all that information. My notes are based on what you said. My simple math, my layman's math, is saying that, but I understand that you're not comfortable so I won't press you on that anymore.
At any point in this period of losses, did the bank advise the Liberal government at the time of its irresponsible fiscal strategy? Did that create issues for the bank's balance sheet? Are you allowed to answer that?
Managing Director and Chief Financial Officer, Bank of Canada
I can't answer that. I'm not involved in those types of discussions. We record the transactions that are made through decisions by the governor and the governing council, which we are not involved in. Once those transactions are made, we record them in the bank's financial statements.
Conservative
Ned Kuruc Conservative Hamilton East—Stoney Creek, ON
Okay.
What kinds of checks and balances are in place to make sure that losses of this size are prevented?
Managing Director and Chief Financial Officer, Bank of Canada
The bank has resumed normal operations. Through that, it has implemented a strategy to ensure that there's a matching between the interest rate and the duration on the assets it holds and also the liabilities on its balance sheet. By ensuring that there's matching between those items, we are mitigating against the risk of future losses.
Conservative
Ned Kuruc Conservative Hamilton East—Stoney Creek, ON
Okay; that you can comment on. Thank you very much.
Can you tell us how much of the bank's current losses were caused by the size of the borrowing during the pandemic years?
Managing Director and Chief Financial Officer, Bank of Canada
The losses created through the quantitative easing or the large purchases done during the pandemic totalled $10 billion.
Conservative
Conservative
The Chair Conservative John Williamson
Thank you very much.
Next is Ms. Tesser Derksen.
You have five minutes, please.
Liberal
Kristina Tesser Derksen Liberal Milton East—Halton Hills South, ON
Thanks very much, Mr. Chair, and thanks to our witnesses today.
It's no secret that the economy is facing some challenges right now and that we expect it to remain in a soft patch for the coming months. We have trade conflicts that have weakened demand for exports and have heightened uncertainty, which has led to some businesses postponing expansion plans and things like that.
That's hampering the economy's ability to grow, but I know that we have strong foundations in place. I want to give you an opportunity to comment on how those foundations, whether they're policies or other protocols, are expected to support a growing economy in the coming months and years.
Managing Director and Chief Financial Officer, Bank of Canada
Again, we cannot speak to the economy or decisions about the economy. That is for the governor, the senior deputy governor and the governing council. We can speak, however, to the financial results on the financial statements of the Bank of Canada.
Liberal
Kristina Tesser Derksen Liberal Milton East—Halton Hills South, ON
Okay. Can you give us an overview of the relationship between government fiscal policies and the monetary policy that you pursue independently as the Bank of Canada and how it relates to public accounts?
Managing Director and Chief Financial Officer, Bank of Canada
The role of the bank is to put in place the monetary policy for the good of Canadians, and it also has a fiscal agent responsibility towards the government. For example, through the policy that the government puts in place to manage its debt, the Bank of Canada does all the transactions to respond to that strategy. We have that role as well. That's as much as I can tell you from an operational perspective.