August 10, 1956

FINANCE

BANK OF CANADA


On the orders of the day:


PC

William Earl Rowe (Leader of the Official Opposition)

Progressive Conservative

Hon. W. Earl Rowe (Acting Leader of the Opposition):

Mr. Speaker, I should like to ask the Minister of Finance this question. In view of the announcement last night by the Bank of Canada that its interest rate has been raised to the unprecedented high level of 3J per cent, will the minister advise the house what is the purpose behind this new move on the part of the Bank of Canada?

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Hon. W. E. Harris (Minister of Finance):

The minister of Finance was expecting to have his estimates called tomorrow, and I shall be glad to discuss this point at that time.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
PC

William Earl Rowe (Leader of the Official Opposition)

Progressive Conservative

Mr. Rowe:

I think this is a very important matter and I should like to ask the minister, in view of the fact that this is the fifth time in 12 months that the interest rate has been raised by the Bank of Canada, from 1-| per cent to 3i per cent, or almost a 125 per cent increase, whether the minister does not consider that such spectacular increases, coupled with other credit restrictions imposed upon the chartered banks now as directed by the Bank of Canada, may have a very dangerous and unsettling effect on the business and general economy of the country.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

The duty of the Bank of Canada is to regulate the interest rate, which is commonly known as the bank rate. That duty and responsibility is imposed upon the bank and not upon the government, and it has not been customary in the past for any Minister of Finance to comment on the actions of the bank in discharging its duty. As a matter of fact, however, without admitting some of the opinions or facts that have been stated in the question, I may say that there is a considerable body of opinion in the financial world today that unless action of this kind were taken there might be more serious results than if no action were taken.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
PC

John George Diefenbaker

Progressive Conservative

Mr. J. G. Diefenbaker (Prince Albert):

I should like to direct a supplementary question to the Minister of Finance, in connection with actions such as this on the part of the 67509-467

Bank of Canada which, in regard to house building and the like, may have a very detrimental effect, and also in connection with the fact that it raises the costs of production at a time when we are endeavouring to compete in other parts of the world. Is the government or any member of the government consulted by the Bank of Canada before a decision as momentous as this one is made?

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

I answered this question some two months ago by saying that the governor of the Bank of Canada is one of the several advisors to the Minister of Finance. In this particular matter, however, he has statutory authority to make his own decisions, that statutory authority having been conferred upon him by parliament. I think it would be correct to say, as I said on the former occasion, that I was advised of this course before it was taken.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

Did the minister in any way suggest, having regard to the inflationary tendencies in this country today, that this action should be taken or might be taken by the bank?

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

Mr. Speaker, I also answered that question two months ago by saying that this action is the action of the governor of the bank and his responsibility alone.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
PC

William Earl Rowe (Leader of the Official Opposition)

Progressive Conservative

Mr. Rowe:

Mr. Speaker, surely that is not a good enough answer. I should like to ask the minister or the government if they approve of this policy or does the Bank of Canada have the business of this country by the throat and can raise the interest rate from 1 per cent to 5 per cent or anything they like? When one stops to realize the importance of it and what it does to contractors, business people and builders across the country I sometimes wonder if the minister really appreciates how significant this is, and I should like to ask the government if they approve of this policy.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

Mr. Speaker, as I said earlier, I propose to discuss this tomorrow and I will give my own opinion at that time with respect to what I would do if I were governor of the Bank of Canada.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
PC

William Earl Rowe (Leader of the Official Opposition)

Progressive Conservative

Mr. Rowe:

You told me that two months ago.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

I am still telling you.

Inquiries of the Ministry

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
PC

William Earl Rowe (Leader of the Official Opposition)

Progressive Conservative

Mr. Rowe:

And business people are

worrying.

Mr. M. J. Cold well (Roseiown-Biggar):

While it is true that the governor of the Bank of Canada makes the final decision in these matters, is it not a fact that the Bank of Canada was established in order that it might control the economy and carry out government policy in that particular? Is it not a fact that was the main reason for its establishment?

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

I do not think that is a correct interpretation of the statute, though anyone can put such an interpretation on it if he so desires. I think the purpose was not only to vest ownership of the bank in the government, as has been done, but to vest in the officials of the bank independent authority because, as I recall it, some members of the opposition thought that perhaps the government might not do this thing properly.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
PC

William Earl Rowe (Leader of the Official Opposition)

Progressive Conservative

Mr. Rowe:

Still most evasive.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
PC

John George Diefenbaker

Progressive Conservative

Mr. Diefenbaker:

Possibly a question to the Prime Minister can clear up this matter. Having regard to the effect not only on business but on agriculture and labour of what has been done by reason of the change in the discount rate, does the Prime Minister, on behalf of the government, believe that what is being done is necessary to meet an inflationary trend?

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink
LIB

Louis Stephen St-Laurent (Prime Minister; President of the Privy Council)

Liberal

Right Hon. L. S. St. Laurent (Prime Minister):

Mr. Speaker, the Prime Minister, like, I think, most of his colleagues, has a large degree of confidence in the work that is done by the officials of the Bank of Canada and feels that they have discharged their duties in a manner which in their opinion, founded upon their research and investigations, is in the best interests of all classes of the population of Canada to which the hon. gentleman has referred in his question.

Topic:   FINANCE
Subtopic:   BANK OF CANADA
Sub-subtopic:   PURPOSE OF INCREASE IN INTEREST RATE
Permalink

August 10, 1956