Governor of Bank of Canada Emphasizes Importance of Productivity in a World Prone to Shocks
Bank of Canada governor Tiff Macklem believes that the world is now more vulnerable to supply shocks, which pose a greater risk to inflation. However, he also mentioned that the central bank is better equipped to address these issues now that inflation is more manageable.
Despite this, Macklem acknowledged that the ability of monetary policy to stabilize output in the face of supply shocks is somewhat limited. He emphasized the importance of fiscal policy playing a role in stabilizing economies post-pandemic.
In a press briefing from Washington, where he was attending International Monetary Fund meetings, Macklem discussed the need to enhance productivity to boost economic growth.
He highlighted that Canada has long struggled with productivity issues, which pose a threat to GDP and can contribute to inflationary pressures.
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During the IMF meetings, Macklem stressed the importance of boosting productivity growth as a crucial factor for fostering sustainable economic growth and resilience without fueling inflation.
He acknowledged the potential for facing new shocks and the need for analyzing and managing uncertainties in today’s turbulent world.
The Bank of Canada recently made its fourth interest rate cut this year, reducing it by half a percentage point to mitigate inflation falling below the target of two percent. The central bank intends to continue with further cuts in the upcoming months.
Macklem highlighted the significance of maintaining low inflation and how the decline in interest rates can help spur demand and absorb excess supply in the economy over time.
He also mentioned that the Bank of Canada is assessing the impact of the government’s decision to reduce immigration targets, as population growth influences both demand and supply dynamics.
As Macklem emphasized, assumptions about population growth play a critical role in forecasting GDP, and the central bank will closely monitor population trends to make informed revisions accordingly.
