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Tiff Macklem, the governor of the Bank of Canada, speaks in Saint John, N.B., on Nov. 22, 2023. Image: Brad Perry

Interest rates may be high enough to lower inflation: BoC

By Brad Perry Nov 23, 2023 | 6:18 AM

The Bank of Canada’s governor says interest rates may now be high enough to get inflation back to target.

Tiff Macklem made the comments Wednesday while speaking to business leaders in Saint John, N.B.

But Macklem cautioned that the central bank is prepared to raise rates further if high inflation sticks around.

“We don’t want to overdo it, we don’t want to squeeze more than we have to, we don’t want to make this any more painful than we have to, but we are determined to get inflation down,” Macklem told the crowd.

The Bank of Canada raised interest rates several times since March 2022. It has remained unchanged at five per cent since July.

Macklem said the higher rates have “cooled our overheated economy and taken the steam out of inflation.”

On Tuesday, Statistics Canada announced that the Consumer Price Index (CPI) had slowed to 3.1 per cent in October.

“We expect the economy to remain weak for the next few quarters, which means more downward pressure on inflation is in the pipeline,” said Macklem. “In short, the excess demand in the economy that made it too easy to raise prices is now gone.”

But that does not mean it is time for the Bank of Canada to start thinking about lowering interest rates, he said.

Macklem said inflation has seen a fair amount of volatility in recent months, falling to 2.8 per cent in June and climbing to 4.0 per cent in August.

The underlying trend of inflation has also been hovering at around 3.5 to 4.0 per cent over the past few months, he said.

“When we are confident that inflation is clearly on a path back to two per cent, it will be time to start having that discussion about whether to cut interest rates,” said Macklem.

“I’d love to be able to put it on a calendar for Canadians, but I think that would risk giving a false sense of precision.”

Macklem said they want to avoid a repeat of what happened in the 1970s. Slow action to address rising inflation meant even higher interest rates and a longer recovery.

The governor acknowledged that higher interest rates are making things difficult for many Canadians.

“But the alternative — years and years of high inflation and then a deep recession — is much worse,” he said.