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BoC Macklem: Still too early to consider cutting interest rate

Governor of the Bank of Canada Tiff Macklem said that unless the central bank is certain that the economy is returning to price stability, it is still too soon to think about cutting interest rates.

The USD/CAD pair was last seen at 1.3372 and was headed for its lowest weekly closing since July. Macklem also emphasized that while inflation must be clearly headed to 2%, it is not necessary to wait until it reaches the 2% objective to think about loosening policy.

In his last address of the year, Macklem forecast that 2024 will be a year of transition because of previous interest rate hikes that have restrained expenditure and constrained employment and GDP. But this weak phase of the economy will lead to more equilibrium. Later in the year, growth and employment are anticipated to rise up, and inflation will be approaching the 2% target.

The Governing Council will keep debating how long monetary policy must stay restrictive in order to restore price stability, as well as whether it is restrictive enough. There will probably be some push and pull against inflation in the upcoming months as other causes exert upward pressure while the cooling economy lessens price pressure. The policy interest rate can be lowered once inflation is trending downward.

The 2% inflation target is now in sight, and conditions are increasingly in place to get there. The demand-supply balance, wage growth, corporate pricing behavior, and inflation expectations will be closely monitored as the country assesses its path to price stability.

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