“With the continued progress we’ve seen on inflation, it is reasonable to expect further cuts in our policy rate,” Macklem said during a speech at the IIF-CBA Forum in Toronto.
The Bank of Canada has already lowered its policy rate by 75 basis points in recent months, bringing it to 4.25%.
Macklem noted that inflation has now returned to the central bank’s 2% target, but stressed that the Bank will continue to monitor key data before making any decisions.
“We need to stick the landing,” he added, pointing to core inflation, which remains slightly above 2%, and shelter cost inflation, which is starting to ease but still remains elevated.
Macklem added that that future rate cuts will depend on “incoming data and our assessment of what those data mean for future inflation.”
He noted that while inflation has cooled, the central bank is also closely watching economic growth indicators to ensure the economy can absorb any slack.
Macklem’s comments echo previous remarks made during the Bank’s September rate announcement. “Governing Council members…agreed that if inflation continued to ease as expected, that it was reasonable to expect that the policy rate would decline further,” reads a summary of the Bank’s deliberations.
Indeed, inflation did continue to fall in August, which supports growing market expectations for two additional rate cuts at the Bank’s remaining meetings this year.
There is also speculation that one of these cuts could be more aggressive, potentially a 50-basis-point reduction, depending on the evolving economic outlook and the severity of downside risks.
Concerns about economic growth
While economic growth picked up in the first half of the year, some recent indicators suggest that momentum may be weakening.
Gross Domestic Product (GDP) growth rose more than expected in the second quarter, posting a quarter-over-quarter growth rate of 2.1%. Statistics Canada also upwardly revised first-quarter growth to 1.8%. However, much of the growth was driven by government spending, which rose 1.5% during the quarter. Sectors such as manufacturing, construction, and wholesale saw the largest declines.
“Most of the growth surprise was driven by government spending and aircraft purchases, which should come back down to earth in the Q3 data,” said James Orlando of TD Economics. “Made worse is that the engine of Canadian growth—the consumer—has slowed the pace of spending in the face of still high rates.”
Macklem echoed concerns about recent economic indicators, noting, “Some recent indicators suggest growth may not be as strong as we expected,” and also highlighted the importance of consumer spending, business hiring, and investment in the central bank’s upcoming monetary policy decisions.
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Bank of Canada Bank of Canada Governor Tiff Macklem rate cut forecasts tiff macklem
Last modified: September 24, 2024