Bank of Canada's Macklem says housing affordability to become more of a focus in mandate review

The Bank of Canada governor, Tiff Macklem, recently announced that policymakers will be placing a greater emphasis on housing affordability as they prepare to renew the central bank’s monetary policy framework next year. Macklem highlighted that while housing supplies are primarily addressed by governments, monetary policy plays a significant role in impacting housing demand through interest rates.

During a speech at Mexico’s central bank in Mexico City, Macklem emphasized the importance of considering how monetary policy influences housing sector dynamics and the overall impact on inflation. He stated, “Housing is a significant component of the consumer price index in Canada, so housing costs directly affect inflation. Therefore, it is crucial to evaluate how monetary policy can best address housing affordability while maintaining overall price stability.”

The central bank undergoes a mandate renewal process with the federal government every five years. Macklem reaffirmed his support for maintaining the two per cent inflation target in the upcoming 2026 review, citing its effectiveness in achieving price stability over time. He stressed the importance of not questioning the target amidst a more uncertain and unpredictable global economic landscape.

In addition to housing affordability, Macklem outlined other priorities for policymakers, including how monetary policy should respond to supply shocks and improving the evaluation of underlying inflation. He also highlighted various vulnerabilities facing economies, such as elevated sovereign debt, geopolitical risks, lagging productivity, artificial intelligence, and United States trade policy.

Reflecting on Canada’s inflation-targeting framework, Macklem noted its success in maintaining price stability over the years. He pointed out that in the 25 years leading up to the pandemic, inflation in Canada closely aligned with the two per cent target and remained within the one-to-three-per-cent band about 80 per cent of the time.

Macklem acknowledged the lessons learned from the pandemic, especially when inflation spiked to an 8.1 per cent 40-year high after the economy reopened. He emphasized the importance of the framework guiding the central bank’s response, leading to a successful reduction in inflation without causing a recession or significant job losses.

Overall, Macklem’s remarks underscore the central bank’s commitment to addressing housing affordability and maintaining price stability through effective monetary policy measures. As the mandate renewal process approaches, policymakers will continue to prioritize these key issues to ensure a stable and resilient economic environment for Canadians.