By Paul Vieira
Bank of Canada Governor Tiff Macklem delivered a sobering assessment to Canadian lawmakers on Monday, highlighting a shift towards weaker economic growth. He emphasized that higher interest rates have begun to impede consumption and bring demand and supply closer to equilibrium.
Inflation Relief in Sight
Macklem stated, "With the economy expected to move into excess supply this year and with growth anticipated to be weak for the next few quarters, we think there's more inflation relief in the pipeline." This comment was part of his opening remarks during a parliamentary finance committee meeting.
Inflation Targets and Projections
As the Bank of Canada's primary responsibility is to set interest rates that achieve and maintain 2% inflation, Macklem projected that inflation will average around 3.5% until mid-2024. Subsequently, he anticipates a gradual easing of inflation to eventually reach the desired 2% by the end of 2025.
Open Door for Future Rate Adjustments
Macklem's testimony, his first appearance before lawmakers this week, followed the recent decision by the Bank of Canada to keep its benchmark rate steady at 5%. Continuing the bank's stance, he reiterated that further rate increases remained a possibility, contingent upon underlying inflation not decelerating as expected.
It is clear that the Bank of Canada is closely monitoring economic developments and adopting a cautious approach given the uncertain trajectory of inflation.