Canada finance minister defends central bank independence after rate comment

(Reuters) – Canadian Finance Minister Chrystia Freeland defended the central bank’s independence on Wednesday after her comments welcoming the Bank of Canada’s decision not to increase its key interest rate raised concerns to the contrary.

In a widely expected decision, the Bank of Canada held interest rates steady at a 22-year high of 5%. Shortly after that Freeland issued a statement saying the central bank’s decision “is welcome relief for Canadians.”

“My number one priority is to use all the tools at my disposal, and to work with partners at other levels of government across Canada, to ensure that interest rates can come down as soon as possible,” Freeland added.

It is rare for Canadian government ministers to publicly back or criticize central bank policies. Like many developed economies, the Bank of Canada makes its monetary policy decisions independent of the federal government.

An economist from one of Canada’s top six banks found Freeland’s Wednesday comments “unhelpful.”

Derek Holt, an economist with the Bank of Nova Scotia, said in a note to clients that the concluding line from the minister’s statement about working “to ensure that interest rates can come down as soon as possible” is not the domain of a finance minister.

The comments “create the impression that political interference risks influencing” the BoC’s decisions, he said.

In June, when the central bank raised rates for the first time after a four-month pause, Freeland stressed that she respected the independence of the central bank, a sentiment she repeated in a press conference later in the day.

Freeland said later on Wednesday that her comment was meant to reflect her sympathy for the financial pains endured by Canadians from higher interest rates.

The BoC’s record pace of interest rate hikes has dealt a blow to many highly indebted Canadians, and opposition Conservative party leader Pierre Poilievre has blamed Liberal Prime Minister Justin Trudeau’s policies for the cost-of-living crisis.

Freeland’s comments come just days after the premiers of Ontario, Canada’s most populous province, and British Columbia, wrote to central bank Governor Tiff Macklem urging him to stop interest rate hikes to end the suffering of Canadians.

(Reporting by Steve Scherer and David Ljunggren in Ottawa; Writing by Denny Thomas; Editing by Leslie Adler)