Bank of Canada faces political pressure to hold rates. But will it matter?

globalnews.ca:

Two premiers have sent letters to Bank of Canada governor Tiff Macklem urging the central bank to halt interest rate hikes ahead of its next rate decision Wednesday.

Ontario Premier Doug Ford sent a letter on Sunday saying families and businesses cannot afford the “crushing impact of further rate hikes,” echoing a letter British Columbia Premier David Eby sent on Thursday.

Associate professor and founding director of McGill University’s Max Bell School of Public Policy, Christopher Ragan says it’s “unfortunate” that the premiers felt that sending these letters was useful.

“It’s pretty easy to find people that will argue that the (central) bank shouldn’t raise interest rates anymore,” Ragan said.

But having premiers send letters to the governor “invariably brings in a political element” to the debate, he said.

The Bank of Canada is an independent institution that receives its mandate from the federal government and is responsible for maintaining a two per cent inflation target.

It’s set to make its next interest rate decision Wednesday and is widely expected to hold its key rate steady as the economy begins to buckle under the weight of higher interest rates.

The Bank of Canada has aggressively raised interest rates since March 2022 to clamp down on decades-high inflation, including raises at its last two meetings in June and July in response to a hot economy.

But over the summer, more signs have emerged that the economy is actually slowing down: the unemployment rate has been on the rise and real gross domestic product unexpectedly contracted in the second quarter.

These signs have convinced most forecasters that the central bank will stay on the sidelines this week, holding its key interest rate at 5.0 per cent — the