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Noah Zivitz

Managing Editor, BNN Bloomberg


A former governor of the Bank of Canada is urging Liberal Party of Canada Leader Justin Trudeau to retract his laissez-faire commentary on monetary policy that went viral on the campaign trail this week.

“I think he should take it back,” said David Dodge, who served as governor of the Bank of Canada from 2001 until 2008, in an interview Thursday.

“I'm not totally surprised. Neither Trudeau I nor Trudeau II have been terribly interested in monetary policy, very unfortunately. In any event, he's wrong. The new government has a very important set of decisions to make coming up on monetary policy and in terms of the renewal of the agreement with the Bank of Canada.”

In an exchange with a reporter Wednesday, when asked about whether a re-elected Liberal government would consider allowing the Bank of Canada to have a slightly higher tolerance for inflation when its mandate comes up for renewal, Trudeau dismissed the issue as not being a priority.

“When I think about the biggest, most important economic policy this government, if re-elected, would move forward, you'll forgive me if I don't think about monetary policy. You’ll understand that I think about families,” he said. 

That turned into immediate campaign fodder, as Trudeau’s comments came just a few hours after new data from Statistics Canada showed inflation jumped 3.7 per cent year-over-year in July, marking the biggest climb for the consumer price index in a decade.

“I'm concerned about monetary policy because I'm concerned about the housing crisis, the fact that hundreds of thousands of Canadians are having trouble keeping up with their bills, the rising costs. Inflation at near 20-year highs doesn't seem to concern Mr. Trudeau,” said Conservative Party of Canada Leader Erin O’Toole, in remarks to reporters Thursday. He added that he supports the Bank of Canada’s current inflation target.

The Bank of Canada’s mandate is due for renewal before the end of this year, meaning it will be one of the first decisions facing the next government -- with profound consequences for Canada’s economy over the next half-decade.

That mandate is set every five years, and is based on an agreement between the federal government and the central bank. As it stands, the Bank of Canada’s central responsibility is to hit the midpoint of an inflation target range of one to three per cent.

Dodge made it clear he supports a renewal of the status quo.

“Remember we have a one to three per cent band, that band of one to three per cent kind of gives you the boundaries around which you think, in the normal ups and downs of the economy which is adjusting to various shocks, that you might run in that band,” he said.

The debate around inflation is playing out around the world as central banks attempt to assuage fears around the sharp run-up in prices that consumers and businesses are encountering as demand outstrips supply in the COVID-19 era when economies re-open. Central bankers including Bank of Canada Governor Tiff Macklem and U.S. Federal Reserve Chair Jerome Powell have described the recent run-up as transitory, and insist price pressures will normalize upon a return to regular economic conditions.

“The central banks are wide awake to the issues at hand here, but would be preparing themselves for somewhat more restrictive monetary policy so that that would not come as a shock to the financial system when we get out to the end of ‘22 and into ’23,” Dodge said.

“That’s the difficult judgment call. It's a very difficult judgment call. But I have great faith that the Bank of Canada understands perfectly.”