Bank of Canada governor Tiff Macklem says policymakers will focus more on housing affordability as they prepare to renew the central bank’s monetary policy framework next year.

Housing supplies remain an issue that will be primarily tackled by governments, but Macklem pointed out that monetary policy impacts housing demand through

interest rates . “Housing is a big part of the consumer price index in Canada, so the cost of housing affects inflation ,” he said during a speech in front of Mexico’s central bank in Mexico City on Tuesday. “Therefore, it’s worth examining how monetary policy affects housing sector dynamics and how best to factor housing affordability into our focus on overall price stability.”

Canada’s central bank goes through a renewal process of its mandate with the federal government every five years. Macklem in February said the two per cent inflation target should be maintained in the 2026 review and reiterated his position during his speech.

“The two per cent target has proven its worth in achieving price stability over time. We are already facing a more uncertain and unpredictable world,” he said. “Now is not the time to question the target.”

Macklem laid out other priorities that policymakers will be looking at, including how monetary policy should best respond to a world more inclined to supply shocks and how to better evaluate underlying inflation.

Elevated sovereign debt, geopolitical risks, lagging productivity,

artificial intelligence and United States trade policy are some of the vulnerabilities facing economies, he said.

The governor said Canada’s inflation-targeting framework has been in place for nearly 35 years and has benefited Canada’s price stability over time.

“In the 25 years leading up to the pandemic, inflation in Canada averaged very close to the two per cent target and was inside the one-to-three-per-cent band about 80 per cent of the time,” he said. “By comparison, in the 25 years before that, inflation averaged just above six per cent and was much more variable.”

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Macklem said the central bank also learned some lessons from the pandemic, when inflation hit a 40-year high at 8.1 per cent after the economy reopened.

“But once it was clear that high inflation was not temporary, the framework guided our response, and we raised the policy interest rate forcefully to bring inflation down,” he said. “It was a painful adjustment for many Canadians, but in the summer of 2024, inflation returned to two per cent and we got there without causing a recession or major job losses.”