BoC's Macklem: Rate hikes may be over

Is the central bank finally done?

BoC's Macklem: Rate hikes may be over

Bank of Canada governor Tiff Macklem has said interest rates may be high enough to continue taming inflation in remarks that suggest the central bank could be at the end of its rate-hiking path.

Macklem told an audience at New Brunswick’s Saint John Region Chamber of Commerce on Wednesday that a sluggish economy, set to continue well into 2024, was likely to exert further downward pressure on inflation in the coming months.

The central bank head said the excess demand that had fuelled price growth in recent times had also dissipated, and indicated the Bank’s policy of rate hikes to date was having its desired effect.

“The tightening of monetary policy is working, and interest rates may now be restrictive enough to get us back to price stability,” he said. Still, Macklem’s speech also reinforced the Bank’s willingness to begin hiking rates again if inflation “persists.”

His remarks arrived a day after Statistics Canada showed the inflation rate had fallen to 3.1% in October, a precipitous drop from the previous month driven by lower prices at the pump.

Flatlining GDP figures in recent months have also pointed to a slowing economy, which posted virtually no growth between August and September, according to StatCan. The national statistics agency said at the end of October that the third quarter likely saw the economy regress at an annualized rate of 0.1%.

With the Bank of Canada having left its policy rate unchanged in its last two announcements, attention has already turned to the question of when rate cuts could be on the way.

Economists generally believe the central bank is likely to begin trimming rates at some point in the second half of 2024, with five-year Government of Canada bond yields – which lead fixed mortgage rates – ticking downwards in recent weeks.

However, Macklem gave little indication on Wednesday of when the Bank is planning to lower rates, emphasizing its focus on making sure core inflation continues to fall before considering a cut.

The Bank intends to see “a number of months of clear evidence that we’re on the path to 2% inflation” before launching into rate drops, he said. The central bank is due to make its final rate decision of the year on December 6.