The Bank of Canada governor says no new rate hikes are needed if the economy performs as expected

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

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The central bank has raised interest rates at a record pace to 4.5 percent over the past 11 months to tame inflation, which stood at 6.3 percent in December, still well above the bank’s 2 percent target. Last month it said it would hold back further steps to help soak up the impact of past increases.

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

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

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

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Immediately after announcing the latest rate hike on Jan. 25, Macklem told Reuters he was focused on whether rates needed to rise and wasn’t even considering a cut, preventing traders from betting on the central bank easing as soon as October become .

“We’re ready to continue raising interest rates,” Macklem said on Tuesday, but the general tone of the speech was more dovish than his comments following last month’s rate hike.

“We need to pause rate hikes before we slow down the economy and inflation too much. And that’s what we’re doing now,” Macklem said. “The significant tightening that we have undertaken will continue to work its way through the economy and this will rebalance supply and demand and slow inflation.”

The Canadian dollar traded almost unchanged at 74.35 US cents, reversing an earlier modest gain.

© Thomson Reuters 2023

Source: financialpost.com