BoC: It is still too early to think about cutting our official interest rate – Tiff Macklem

Bank of Canada Governor Tiff Macklem said Friday that once the central bank “is confident that we are clearly on the path back to price stability, we will consider whether we can lower our policy interest rate.” monetary and when”.

In his last speech of the year, delivered at the Canadian Club Toronto, Macklem explained that “it is still too early to consider” interest rate cuts. He added that it is not necessary to wait for inflation “to return to the 2% target to consider an easing policy, but it is necessary that it is clearly directed towards 2%.”

Main conclusions of the speech:

I hope 2024 will be a year of transition. The effects of previous interest rate increases will continue to play out in the economy, curbing spending and limiting growth and employment. Unfortunately, this is what it takes for inflation to run out of steam. But this period of weakness will pave the way to a more balanced economy.

We expect growth and employment to pick up late next year, and inflation to move closer to the 2% target. And once the Governing Council is confident that we are clearly on the path back to price stability, we will consider whether and when we can lower our official interest rate.

But it is still too early to consider a reduction in our interest rate. Until we see evidence that we are clearly on the path back to 2% inflation, I hope that the Governing Council will continue to debate whether monetary policy is sufficiently restrictive and how long it should remain so to restore price stability.

In the coming months, some swings in inflation can be expected as a cooling economy reduces price pressures, while other forces continue to exert upward pressures. That is why further declines in inflation are likely to be gradual. When it is clear that inflation is on a downward path, we can begin to discuss reducing our official interest rate. It is not necessary to wait for inflation to return to the 2% target to consider easing monetary policy, but it does need to be clearly headed towards 2%.

The 2% inflation target is already in sight. And although we have not yet achieved it, more and more conditions seem to exist to achieve it. The economy no longer registers excess demand, and underlying inflationary pressures are easing across much of the economy. We still need further downward momentum in core inflation, and we will closely monitor the balance between supply and demand, wage growth, corporate price performance and inflation expectations to assess where along the way towards price stability we are.