‘Still too early’ to cut rates, Bank of Canada’s Macklem says
Global News
Bank of Canada governor Tiff Macklem is pushing back on expectations that the central bank will start cutting rates soon, arguing there are still risks to the inflation outlook.
The head of the Bank of Canada is pushing back on expectations for interest rate cuts, despite calls from the market and central bank counterparts south of the border that tightening could reverse in the new year.
Governor Tiff Macklem said in a year-end speech to the Canadian Club in Toronto on Friday that “it’s still too early to consider cutting our policy rate.”
Macklem said that the Canadian economy is “no longer overheated,” which is “relieving inflationary pressures.”
Canada’s top monetary policymaker added that while he expects “gradual declines” in inflation amid weak economic growth in 2024, there are still risks for the Bank of Canada to consider. He cited dangers that conflicts in the Middle East and Europe could escalate as one such risk.
“When it’s clear that inflation is on a sustained downward track, we can begin discussing lowering our policy interest rate,” Macklem said. “We don’t need to wait until inflation is all the way back to the two per cent target to consider easing policy, but it does need to be clearly headed to two per cent.”
Macklem warned that interest rate hikes to date will continue to work their way through the economy in 2024, “limiting growth and employment.” He said the next few quarters will likely be “difficult for many” Canadians as higher borrowing costs squeeze their budgets.
“Unfortunately, this is what’s needed to take the remaining steam out of inflation,” Macklem said.
The national inflation rate eased to 3.1 per cent in October. The final inflation reading for the year will come Dec. 19, with some early forecasts predicting a further cooling in November.
