Bank of Canada says no new rate hikes needed if inflation falls as expected

Bank of Canada says no new rate hikes needed if inflation falls as expected

Article content

OTTAWA — Bank of Canada Governor Tiff Macklem on Tuesday said that no further rate hikes will be needed if, as expected, the economy stalls and inflation comes down.

The central bank over the last 11 months has lifted rates at a record pace to 4.5% to tame inflation, which was 6.3% in December, still well above the bank’s 2% target. Last month, it said it would hold off on further moves to let the effects of past increases sink in.

Article content

“If new data are broadly in line with our forecast and inflation comes down as predicted, then we won’t need to raise rates further,” Macklem said in a speech to financial analysts in Quebec City.

See also  Canada hunts for wreckage of latest object shot down by U.S. fighters

Advertisement 2

Story continues below

Article content

“Inflation is turning the corner. Monetary policy is working,” Macklem said, adding that economic growth would be “close to zero” through the third quarter of this year.

The Federal Reserve last week said it had turned a key corner in the fight against high inflation, but that “victory” would still require higher rates. Federal Reserve Chair Jerome Powell on Tuesday said it would take “quite a bit of time” to bring U.S. inflation back to the 2% target.

“The head of the Bank of Canada seems quite comfortable sitting on the sidelines even as his U.S. counterpart will be discussing the need for further monetary tightening south of the border,” Royce Mendes, head of macro strategy at Desjardins Group, said in a note.

The Canadian dollar was trading nearly unchanged at 1.3445 per greenback, or 74.38 U.S. cents, in choppy trading after the speech by Macklem and comments by Powell.

Advertisement 3

Story continues below

Article content

On Monday, a median of market participants surveyed by the central bank forecast that borrowing costs would come down by half a percentage point by the end of this year, and would fall further next year.

See also  Eleven French nuclear sites affected by strike, union says

When asked by reporters about the survey, Macklem reiterated that it was “really far too early to be thinking about cutting rates. … We are pausing interest rate hikes to assess whether we’ve raised interest rates enough.”

In his prepared remarks Macklem said, “We are prepared to raise interest rates further.” But the overall tone was more dovish than his comments following last month’s rate hike, when he told Reuters he wasn’t even thinking about a cut.

“We need to pause rate hikes before we slow the economy and inflation too much,” he said in his speech. (Reporting by David Ljunggren and Steve Scherer; Additional reporting by Fergal Smith in Toronto; Editing by Mark Porter)

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

Leave a Reply

Your email address will not be published. Required fields are marked *