Tiff Macklem Affirms Bank of Canada Won’t Lower Interest Rates in Near Future
FILE PHOTO: Bank of Canada Governor Tiff Macklem conducts a year-end fireside chat in Vancouver
Bank of Canada Governor Tiff Macklem said market participants who interpret his decision to pause from raising interest rates as a prelude to rate cuts may be outpacing themselves.
Macklem used a Feb. 7 speech in Quebec City to reiterate that the central bank would take a conditional pause on rate hikes in the coming months to see if enough was being done to reverse inflation. However, the governor was certain that policymakers are not planning any cuts any time soon.
“Let me be very clear: we are pausing rate hikes to assess whether we have raised rates enough to bring inflation back to target levels,” Macklem told reporters after his speech. “Monetary policy works with a delay. We quickly raised the prices. We see the effects. We know there is more to come. It makes sense to stop and see if we’ve done enough.”
Bay Street may not get the message. In the Bank of Canada’s first survey of market participants, released this week, the median expectations of 28 analysts are for interest rates to fall from their 4.5 percent level in September and October, before falling back to 4 percent by December become.
The poll was conducted late last year, ahead of Macklem’s pledge last month to call for a pause on the most aggressive string of rate hikes in Bank of Canada history. Still, the poll underscored expectations that a recession could force Macklem to cut the cost of borrowing, complicating his attempt to convince the public that his priority is to quell inflation.
Macklem noted that market expectations are a moving target, noting the approximately two-week lag between collecting responses and releasing results.
“Market expectations further out have firmed,” Macklem said. “So if you did the survey today, you’d probably get slightly different results.”
The central bank raised interest rates by a quarter point in January, but said that would be enough for now as long as inflation slows further. It was the eighth straight hike and kept interest rates at 4.5 percent, compared with 0.25 percent this time a year ago.
Inflation has been stubbornly high in recent months, slowly declining gradually – from a peak of 8.1 percent in June, to around 7 percent at the end of the summer and 6.3 percent in December. That’s why Macklem isn’t closing the door on further rate hikes if he thinks they’re necessary to get a grip on decades of high price pressure.
“We will evaluate the economic development relative to the (January) forecast,” said Macklem in his remarks. “If fresh evidence accumulates that inflation is not falling in line with our forecast, we stand ready to raise our policy rate further.”
In his forecasts, Macklem pointed to some risks that could complicate the central bank’s mission.
“The biggest thing is that global energy prices could rise and inflation could skyrocket around the world,” Macklem said in his speech. “We are also concerned that inflation expectations remain high and labor costs could continue to rise. If those upside risks materialize, we stand ready to raise interest rates further to bring inflation back to the 2% target.”
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