Finance

The House of Commons Standing Committee on Finance met to study the Bank of Canada’s monetary policy report and recent interest rate decision. The witnesses were Tiff Macklem, Governor of the Bank of Canada, and Carolyn Rogers, Senior Deputy Governor.

Governor Macklem stated that the Bank lowered its policy interest rate by 25 basis points to 2.25%, reflecting ongoing economic weakness and contained inflation. He said U.S. tariffs and trade uncertainty have weakened the Canadian economy, causing a structural transition that reduces productive capacity and limits what monetary policy can achieve. He noted that GDP contracted 1.6% in the second quarter, growth is expected to remain weak at about 0.75% in the second half of 2025, and the entire path for GDP is lower than before the trade shock. He recommended that Canada improve competitiveness and productivity through investment, and said that if the economy evolves in line with the Bank’s outlook, the current policy rate is about right.

Senior Deputy Governor Rogers said the urgency to fix Canada’s productivity, which she called a “break-glass emergency” in 2024, has only increased due to the trade shock. She said the government’s budget generally shares the diagnosis of weak business investment and the need for productive investments, but execution and the quality of spending will be important. She recommended reviewing and harmonizing regulations across provinces, encouraging investment through tax rules, and making the country more investable. She disagreed with any suggestion that the Bank of Canada manipulates the exchange rate, stating it has not intervened in foreign exchange markets since 1998.

During the meeting, members asked about the impact of tariffs, productivity, housing affordability, and the budget. The Governor said the Bank’s forecast does not account for the new federal budget, which will be incorporated in the next outlook. He also said that the industrial carbon tax has a small impact on housing costs, and that the key to housing affordability is increasing supply and lowering construction costs, not just lowering interest rates. The Senior Deputy Governor advised against solving housing affordability by making it easier for young people to take on more debt, and emphasized that keeping inflation low and stable is the Bank’s primary contribution to the economy. No procedural debate, motions, or votes occurred during the meeting.