‘Inflation is turning the corner. Monetary policy is working’
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Published Feb 07, 2023 • 1 minute read
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“Inflation is turning the corner. Monetary policy is working,” Bank of Canada governor Tiff Macklem said in speech on Feb. 7. Photo by Adrian Wyld /The Canadian Press OTTAWA — Bank of Canada Governor Tiff Macklem said on Tuesday that no further rate hikes will be needed if, as expected, the economy stalls and inflation comes down.
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Access articles from across Canada with one account Share your thoughts and join the conversation in the comments Enjoy additional articles per month Get email updates from your favourite authors The central bank has over the last 11 months lifted interest rates at a record pace to 4.5 per cent to tame inflation, which was 6.3 per cent in December, still well above the bank’s 2 per cent target. Last month, it said it would hold off on further moves to let the effects of past increases sink in.
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“If new data are broadly in line with our forecast and inflation comes down as predicted, then we won’t need to raise rates further,” Macklem said in a speech to financial analysts in Quebec City.
“Inflation is turning the corner. Monetary policy is working,” Macklem said, adding that economic growth would be “close to zero” through the third quarter of this year.
On Monday, a median of market participants surveyed by the central bank forecast borrowing costs would come down by half-a-percentage-point by the end of this year, and would fall further next year.
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Just after announcing the last rate hike on Jan 25, Macklem told Reuters he was focused on whether interest rates would need to go higher and was not even considering a cut, pushing back against traders betting that the central bank will move lower as soon as October.
“We are prepared to raise interest rates further,” Macklem said on Tuesday, but the overall 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 the economy and inflation too much. And that is what we are doing now,” Macklem said. “The considerable tightening we’ve done will continue to work its way through the economy, and this will rebalance demand and supply and slow inflation.”
The Canadian dollar was trading nearly unchanged at 74.35 U.S. cents, giving back its earlier modest gain.
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