Bank of Canada governor considers rate cuts but says it is still too early

A sustained downward trend on price pressures will make the Bank consider lowering the policy rate

Bank of Canada governor considers rate cuts but says it is still too early

The Bank of Canada’s top official has stated that while the bank considered cutting interest rates when inflation was headed towards its 2% target, it is still too early to do so, as reported in an article by Bloomberg.

Tiff Macklem, he Bank of Canada’s governor, said that once officials are assured that price pressures are set on a downward trend, the central bank will consider whether or not it can lower its current policy rate.

“I know it is tempting to rush ahead to that discussion. But it’s still too early to consider cutting our policy rate,” said Macklem.

The central bank governor also reiterated how policymakers were prepared to increase borrowing costs if they needed to. He also said that the officials believed that interest rates were high enough to tame inflation.

“The members did agree that the likelihood that monetary policy was sufficiently restrictive to achieve the inflation target had increased,” said Macklem, further noting that the rate-setting council was discussing how long interest rates needed to continue being restrictive in order to restore the stability of prices.

Macklem said that inflation is forecast to be near the central bank’s 2% target by the end of 2024, while declines in price pressures were likely to be gradual. He added that underlying pressures on inflation were easing.

“The bank is comfortable that policy rates are now tight enough to quell inflation,” said Andrew Kelvin, head of Canadian and global rates strategy at TD securities.

“Central bank messages have short shelf lives at the best of times. It may only take a month or two of soft data for the Bank of Canada to actually start considering rate cuts,” added Kelvin.

The Bank of Canada is set to announce its rates again on Jan 24.