Macklem defends BoC pause on rate hiking, warns of overtightening

Bank of Canada Governor Tiff Macklem defended his stance for interest rate pause, while laying out metrics that may prompt another increase in borrowing costs. Macklem also pointed out that it can take 18 to 24 months to see the full effects of higher interest rates, which have jumped 425 basis points since March.

He added that BoC policymakers want to avoid overtightening. Canadian bond yields began dropping shortly after BoC accidentally published the text of Macklem’s speech on its website. It was quickly removed.

The two-year benchmark was at 3.928% as of 1:14 p.m., down about 4.7 basis points from its level at the time the speech was first posted.

“We need to pause rate hikes before we slow the economy and inflation too much,” Macklem said, according to the prepared text of a speech Tuesday in Quebec City. “We shouldn’t keep raising rates until inflation is back to 2%.”

While annual price gains in Canada are running at 6.3%, “recent developments have reinforced our confidence that inflation is coming down,” Macklem said, reiterating a forecast for the headline rate to fall to 3% by midyear.