–BOC’s Macklem: Governing Council Statement Points to ‘Conditional Pause’
–Macklem: Prepared to Raise Rates Further If Inflation Moves Higher Than Forecast
By Max Sato
(MaceNews) – It is too early to discuss whether the Bank of Canada will need to consider lowering interest rates to support economic growth as it takes time to bring inflation back to the bank’s 2% target, Governor Tiff Macklem said Wednesday after the bank conducted what is seen as one of its last rate hikes in the current tightening cycle.
Asked about market expectations that the bank may start cutting rates in late 2023, Macklem told a news conference, “Inflation is still 6%. It is far too early to talk about cuts.”
He noted that Canadians are experiencing a rapid increase in the cost of living, adding, “6% inflation is better than 8% but it is still too high.”
In their latest forecast, BOC policymakers are “confident” that inflation will come down as global supply bottlenecks continue easing and shorter-term inflation measured in the three-month moving average shows the upward price pressure momentum is cooling, said the governor.
The risk of a wage-inflation upward spiral in Canada is lower now, he said.
Asked again what economic conditions would entice the bank to consider rate cuts, Macklem replied, “It’s too early to be talking about rate cuts.”
“We are talking about a pause. We are trying to balance the risks of over- and under-tightening,” he said.
The Bank of Canada on Wednesday raised its policy interest rate — the target for overnight lending rates — by 25 basis points to 4.50% from 4.25%, as expected, in an eighth consecutive hike in the tightening phase that began in March aimed at bringing high inflation back to its 2% target.
“If economic developments evolve broadly in line with the MPR (Monetary Policy Report) outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases,” it said. “Governing Council is prepared to increase the policy rate further if needed to return inflation to the 2% target, and remains resolute in its commitment to restoring price stability for Canadians.”
Macklem stressed that it is a “conditional pause” that the bank’s policymaking panel is talking about. “It’s conditional economic developments are coming out in line with our forecast,” he said. “If we need to do more, if we need to raise interest rates further to get inflation back to target, we will.”
Going forward, both Macklem and Senior Deputy Governor Carolyn Rogers said they will be monitoring “accumulation of data,” instead of any particular indicators, when they judge whether the economy moving in line with the bank’s growth and inflation outlook.
Canadians are expected to feel the pain of an economic slowdown this year under high borrowing costs and cooling labor conditions, but it is unlikely to be a sharp recession, Macklem said. Economic growth will pick up when supply catches up with demand, he said.
Canada’s housing market slowdown has been in line with the bank’s expectations and the housing market is expected to come back later this year as immigration has been increasing in Canada, which supports consumption, Rogers said.
Asked about the impact of the restrictive financial conditions resulting from a series of rate hikes, Macklem said investment in housing and spending on consumer durable goods have been slowing.
“You can see the effects of monetary policy (tightening) through the economy,” he said. “Service price inflation will also come down.”