'We are getting closer' to cutting interest rates, Bank of Canada governor tells MPs
Bank of Canada governor Tiff Macklem arrives to appear as a witness at a House of Commons finance committee in Ottawa on Thursday.
The Bank of Canada is getting closer to cutting interest rates as inflation shows signs of coming down and staying down, the central bank’s governor, Tiff Macklem, told MPs Thursday.
“We do see renewed downward momentum in underlying inflation. The message to Canadians is: we are getting closer. We are seeing what we need to see and we just need to be confident that it will be sustained,” Macklem said during an appearance before the House of Commons finance committee.
Economic growth has stalled, there’s an excess supply of goods, wage increases have stabilized and the labour market has cooled “from very overheated levels,” which has helped to bring down prices, Macklem said.
“Our key indicators of inflation have all moved in the right direction,” he said, pointing at data that strips out more volatile price swings, like food and energy prices.
The next opportunity for the central bank to possibly cut rates is June 5.
Macklem’s upbeat tone could be good news for homeowners and would-be buyers who have been forced to buy or refinance a home with interest rates at 20-year highs.
He said the bank’s current policy rate of five per cent has been “restraining” demand for homes.
But the Bank of Canada is now projecting “a strong pick-up in housing over the course of this year” with “some increase in housing prices,” Macklem said.
Acknowledging that higher rates have been hard on Canadians and some sectors of the economy like real estate, Macklem said the bank doesn’t “want to keep monetary policy this restrictive for longer than we have to.”
Macklem’s relatively rosy outlook on rates differs somewhat from Jerome Powell, the chair of the U.S. Federal Reserve, the body that sets interest rates in that country.
The Fed held interest rates steady on Wednesday.
“Inflation is still too high,” Powell said. “Further progress in bringing it down is not assured and the path forward is uncertain.”
Worries about Canadian dollar
Macklem said there’s a reason inflation has come down more here than in the U.S. — Canada’s economy has been weaker than south of the border.
“We have our own currency — we can run our own monetary policy,” Macklem said, while adding that a decision to cut rates while the U.S. stands pat could have an “impact on the Canadian dollar.”
“If we move lower than the Fed, that will tend to depreciate the Canadian dollar,” he said.
That could be problematic for vacationers and frequent cross-border travellers, but a weaker loonie could also be a boon for the Canadian economy, as our exports become cheaper.