Vaughn Palmer: Eby makes no apology for calling for halt to BoC hikes

Opinion: Eby was not the only premier to plead with the bank recently to hold the line on interest rates

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VICTORIA — Premier David Eby dismissed concerns this week that his call for the Bank of Canada to stop raising interest rates had posed a threat to the independence of the institution.

The premier was responding to a warning from BoC governor Tiff Macklem that “requests from elected officials about how we should set interest rates could create the impression that the Bank of Canada’s operational independence is at risk.”

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“I’m sure you agree that this would be unfortunate,” wrote Macklem in a letter to Eby.

The premier scoffed at the suggestion.

“I think the independence of Bank of Canada is just fine. I think he’ll be OK,” Eby told reporters.

The exchange was initiated by an Aug. 31 letter where Eby urged the BoC governor to pause interest rate hikes — 10 of them spread over the previous 18 months — which the bank has been using to fight inflation.

“People in B.C. are already hurting,” wrote Eby. “In your role as governor, I urge you to consider the full human impact of rate increases and not further increase rates at this time.”

Macklem wrote back two weeks later, although his letter did not come to light until a news report this week from the Canadian Press.

“I make no apologies for that,” the premier told reporters Tuesday when asked about the fallout from his letter to Macklem.

“I’m hearing from British Columbians every day — and it’s only gotten louder since I wrote originally to the governor — about the impact of rising interest rates on their ability to survive, their ability to make mortgage payments, and by what their family needs.

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“When I looked at the governor’s reasons for raising rates, one of them was inflation driven by housing costs. Well, we’re not going to address inflation related to housing costs by shutting down rental housing developments and making housing more expensive for people through their mortgages. It’s going to make inflation in housing costs higher.”

Having stated the rationale for his letter to Macklem, Eby noted that the feedback from the central banker was not entirely negative — “He said he was glad to hear those perspectives from B.C.”

Premier David Eby
Premier David Eby in October 2023 Photo by CHAD HIPOLITO /THE CANADIAN PRESS

Macklem did indeed “thank” the premier “for sharing your assessment of the impact of the Bank of Canada monetary policy actions on the citizens you serve.”

He also conceded Eby’s point that “higher interest rates are adding to the difficulties that many people are already facing with rising inflation, particularly those with a variable-rate loan or mortgage.

“If we hadn’t raised interest rates, the interest rates on a mortgage might be lower today,” wrote Macklem.

Yet he argues the central bank has to consider longer-term impacts.

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“High inflation erodes everyone’s purchasing power. It makes it hard to pay bills, put food on the table and plan for the future. It particularly hurts the most vulnerable members of society because they are least able to afford increases in their cost of living.”

“Unfortunately,” continued Macklem, “there is no pain-free way to get total inflation back to target.

“The Bank of Canada has been targeting two-per-cent inflation since 1995, and it has proven to be an important cornerstone of our economic and financial system.

“The past 30 years have clearly demonstrated that low, stable and predictable inflation delivers better economic outcomes, even when economies are faced with shocks and structural shifts.

“Simply put, when inflation is stable around the two-per-cent target, it removes the anxiety created by large swings in the cost of living.”

The bank has to stay the course, and to do so, he argued, operational independence is critical.

“As Canada’s central bank, we are charged with the responsibility to control inflation, and we remain committed to restoring price stability for all Canadians.”

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Or, to put it less diplomatically, if politicians were in charge of interest rates, they would never be pegged high enough to curb inflation.

Macklem maintains the policy is working: “Inflation peaked at 8.1 per cent last June, and has since eased to 3.3 per cent this July.”

Still, he didn’t rule out raising rates further “if inflationary pressures persist.”

Likewise, Eby reserved the option of writing to Macklem or — ahem — “whoever his successors may be at the Bank of Canada, to say that British Columbians are feeling the impacts of this or that decision.”

Eby was not the only premier to plead with the bank recently to hold the line on interest rates. Ontario’s Conservative Premier Doug Ford and Newfoundland’s Liberal Premier Andew Furey did so as well. Both got similar letters from the BoC governor.

Eby and his colleagues spoke for the concerns of many constituents, no doubt.

But higher interest rates also pose an obstacle to provincial government spending and borrowing.

Even B.C., with its triple-A credit rating and relatively low interest charges, will feel the bite of higher rates, given plans to add $40 billion to the provincial debt over the next three years.

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When Eby frets about impacts on household budgets and mortgages, he’s also thinking about how higher interest rates constrain the fiscal leeway of his own NDP government.

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