Bank of Canada Governor Tiff Macklem says interest rates will likely be lowered at some point in 2024, predicting a transition period for the Canadian economy.
In an exclusive interview with BNN Bloomberg’s Amanda Lang, Macklem predicted that interest rates could start falling “sometime in 2024,” but he did not provide a more detailed timeline.
“We’re keeping a very close eye on core inflation,” he said in a television interview scheduled to air Friday, adding that the central bank needed to see “a few months of sustained downward momentum in core inflation” before cutting rates. Ta.
“If you look at our projections, it’s going to be next year, but we’re not going to put that on the calendar.”
This is in line with economists’ expectations for a rate cut in the second or third quarter of 2024.
fight against inflation
The Bank of Canada began raising interest rates in March 2022 with the aim of curbing inflation and returning it to its 2% target.
Meanwhile, Canada’s inflation rate has been steadily declining, reaching 3.1% in October, down from a peak of 8.1% in June 2022.
The Bank of Canada has kept the base interest rate unchanged at 5% in the past three interest rate setting decisions.
Macklem said in an interview that he is growing confident that the central bank’s approach is working to bring inflation back on target.
“While there is certainly growing confidence that monetary policy is working and the conditions are forming to get inflation back to 2%, it is not yet guaranteed and we are not quite there yet,” Macklem said. I haven’t.”
“There are a few more things we need to see to be confident that we’re getting back to 2%, and we’re monitoring them closely.”
Inflation data for November is scheduled to be released on Tuesday.
“Year of Transition”
Macklem said he is increasingly confident about the trajectory of inflation, but expects some economic pain in the near term.
“We’re expecting this to be a year of transition. The first part is not going to feel good, I’m not going to sugar coat it,” he said.
- Macklem’s full Taking Stock interview will be broadcast on Friday, December 22nd at 6pm on BNN Bloomberg, CP24 at 9pm and CTV News Channel at 10:30pm.
“But as we move into the second half of this year, I think we can expect that growth will pick up, inflation will continue to fall, and we should get closer to our goal by the end of next year. Although we are not there yet. , we’re getting there.”
future of interest rates
Regarding interest rates, Macklem said he believes interest rates will never fall to the lowest levels Canadians experienced before the pandemic.
“I think it’s reasonable to expect it to decline, but probably not to pre-COVID levels,” he said.
“After the global financial crisis, we had 10 to 12 years of extraordinarily low interest rates. I think there’s good reason to believe we’re not going to go back to very low interest rates. It’s going to be a correction.”
Confidence in soft landing
Raising interest rates is intended to slow the economy, but it also increases the risk of recession.
If the economy contracts in the fourth quarter, Canada would enter a technical recession, defined as two consecutive quarters of negative growth.
But Macklem said he believes Canada will go into a recession in the coming months, but it won’t last for long.
“We don’t need a deep recession. We can get inflation back to 2% without a recession,” he said.
“That’s not to say we’re predicting virtually zero growth over the next two to three quarters. There could be some small negatives, and there could be some small positives. Even if it’s a small negative, it’s not a serious recession.”
