Bank of Canada's Macklem says interest rate hikes may be over
Bank of Canada governor Tiff Macklem said policymakers may have done enough to tame inflation, reinforcing market and economist expectations that short-term rates have peaked.
In his first speech since leaving the bank’s overnight rate unchanged at five per cent in October, Macklem said the economy is expected to remain weak for the next few quarters, which means “more downward pressure on inflation is in the pipeline.”
“This tightening of monetary policy is working, and interest rates may now be restrictive enough to get us back to price stability,” he said, reiterating the central bank is prepared to raise rates again “if high inflation persists.” Bonds rallied after the release of the speech text, taking the yield on the Canada two-year note down to about 4.4 per cent.
Macklem’s remarks came a day after the latest data showed consumer prices rose 3.1 per cent in October over a year earlier, the slowest pace since June. A key metric for underlying inflation pressures that policymakers are closely tracking also slowed to below three per cent.
His comments suggest the Bank of Canada has more confidence that inflation will continue to decelerate as the economy slows, allowing policymakers to keep rates steady. Officials are expected to hold again when they next set rates in two weeks, and markets and economists see the central bank easing monetary policy by mid-2024.
“The economy is approaching balance,” Macklem said Wednesday in Saint John, New Brunswick.
Importantly, Macklem suggested Canada’s weakening economy points to a normalization of corporate pricing behavior, a key inflation risk the central bank says it’s closely watching.
“The excess demand in the economy that made it too easy to raise prices is now gone.”
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