Bank of Canada Governor Tiff Macklem stated that Prime Minister Mark Carney’s fiscal plans are not yet complicating inflation control, emphasizing that current government spending isn’t significantly adding to inflation pressures due to excess economic capacity and a focus on investment over operating costs. The central bank recently raised its policy rate to 2.5% to counter oil price impacts, with the federal budget set for release on Thursday. The budget includes a C$36 billion productivity mega deduction over five years to boost business investment, while the fiscal shortfall is projected at 2% of GDP.
Macklem noted growth may improve by 2027 as exports and investment strengthen, supported by fiscal measures, though he cautioned about the need for careful policy amid elevated uncertainty. He stressed that fiscal spending should prioritize long-term capacity building over short-term demand stimulation, criticizing past government focus on consumption rather than productive investment. Some economists, like Doug Porter of Bank of Montreal, argue that expansive fiscal support conflicts with the recent rate hike, suggesting monetary and fiscal policies may be at odds.
However, Porter indicated his view could shift if trade uncertainty and tariffs ease through Canada-US agreements. The bank signaled potential for further rate increases but pledged a cautious approach.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing