Bank of Canada Governor Tiff Macklem says fiscal and monetary policy are rowing in opposite directions, making it harder to bring inflation down.
Macklem is appearing before MPs on the House of Commons finance committee after the Bank of Canada’s recent rate decision and quarterly economic projections.
In response to questioning from Conservative MP Jasraj Singh Hallan, the governor said government spending is working at cross purposes with the central bank’s efforts to bring inflation down.
The governor said that according to federal and provincial budgets, government spending aggregate will grow faster than supply in the economy over the next year, adding upward pressure to inflation.
The Bank of Canada opted to maintain its key interest rate at 5% last week, but left the door open to more rate hikes if inflation remains high.
The Bank of Canada is expecting the country’s annual inflation rate, which came in at 3.8% in September, to return to 2% in 2025.