Bank of Canada Governor Tiff Macklem faced tough questions from Conservative and Liberal MPs over his decision to raise interest rates, despite acknowledging the move would provide no immediate relief to Canadians struggling with soaring energy costs.Blacklock's Reporter says appearing before the Commons finance committee Tuesday, Macklem defended the central bank’s October 28 decision to increase its key interest rate from 2.25% to 2.5%, reversing three years of rate cuts.“We totally understand, you know, there is no immediate benefit of raising interest rates,” Macklem told MPs. “But that’s the tool we have to moderate this pass-through of costs.”The Bank of Canada has also warned further increases could be coming, with its next interest rate announcement scheduled for December 8.In its latest Monetary Policy Report, the central bank said inflation was “materially higher than previously forecast,” blaming tariffs and rising fuel prices.Diesel prices averaged $2.58 per litre across Canada on Tuesday, according to Natural Resources Canada, adding to financial pressures facing businesses, farmers and consumers.Conservative MP Tamara Jansen, who represents the British Columbia riding of Cloverdale-Langley City, challenged Macklem over whether higher borrowing costs would make an already difficult economic situation worse.“You just raised interest rates because you’re concerned higher energy costs will spread throughout the economy, is that correct?” Jansen asked.“Yes,” Macklem replied.Jansen then questioned whether increasing interest rates would also make it more expensive for businesses to borrow money, construct facilities and expand production.“Why don’t you just get all your questions out,” Macklem responded.“I’m just asking if you agree with that,” Jansen said.“Yes, but you can’t look at each thing in isolation,” Macklem replied. “Our decisions reflect everything together.”Jansen pressed the governor on whether reducing energy costs would lower inflation forecasts without forcing businesses and consumers to absorb higher borrowing costs.“Lower global oil prices would certainly reduce inflation,” Macklem acknowledged, without providing further details.The criticism was not limited to Conservatives..Liberal MP Kent MacDonald, who represents Cardigan, P.E.I., told Macklem he was struggling to explain the central bank’s decision to constituents whose livelihoods depend on agriculture, fishing and food processing.MacDonald said rising diesel and fertilizer costs were already forcing businesses to reconsider spending plans.“Diesel, fertilizer, those types of things have already slowed investment decisions,” MacDonald said.He questioned why the Bank of Canada was increasing borrowing costs while the federal government was attempting to encourage economic expansion.“Your policy of raising the rates seems to be diverging with our policy as a government of creating incentive,” he said.MacDonald asked Macklem to explain how higher interest rates would benefit small businesses already facing increased operating expenses.“I know your policy can’t do everything for everybody, but can you explain to those small business owners why the decision was made and why it was important to make, because I’m having a hard time explaining it to them, okay?” MacDonald asked.Macklem maintained the central bank could not control international energy markets but could prevent higher fuel prices from triggering broader inflation throughout the Canadian economy.“We can’t lower global energy prices,” Macklem said.“What we can do is slow and reduce the pass-through of those higher energy prices to the prices people are paying in the grocery store.”He acknowledged businesses would inevitably pass some increased costs along to consumers but argued higher interest rates would discourage companies from raising prices as aggressively.“Those costs are going to get passed through,” Macklem said.“But by raising interest rates, what it does in the economy is it keeps people’s expectations of inflation tempered. It makes companies think twice about passing everything through, so that it is going to help keep inflation under control.”.The exchange highlighted concerns among MPs from both major parties about the economic consequences of higher interest rates at a time when Canadians are already facing increased fuel, food and business costs.For borrowers, the Bank of Canada's decision means higher financing costs, while businesses dependent on diesel and other energy products continue to face pressure from rising operating expenses.Macklem nevertheless maintained that controlling inflation required action now, even if Canadians would not see immediate benefits from the increase.
