(Ottawa) The Bank of Canada will have difficulty reducing inflation if governments do not control their spending, its Governor Tiff Macklem warned Thursday. The central bank left its key rate unchanged last week, but had opened the door to a possible cut.
“If real public spending at all levels of government increases significantly above 2%, then it will be difficult to bring inflation down to 2%,” he acknowledged.
He then answered questions from elected officials as part of the House of Commons standing committee on finance.
The Bank of Canada estimates that federal, provincial and municipal government spending will be somewhat above this limit during the year at 2.25%, which is “already at the upper limit” of growth potential economy. If this spending increases further, it would go some way to thwarting the central bank’s work in trying to reduce inflation, which could delay a possible cut in interest rates.
“We know that Canadians want to see inflation go down,” he admitted. They are tired of seeing prices rise so quickly and we know they would like to see interest rates go down. And U.S. too. »
But it’s impossible for the moment to circle a date on the calendar. “Currently, monetary policy is working and we must continue to let it work,” he added.
The central bank will reduce its key rate as soon as it has confidence that inflation is on track to reach 2% and it is estimated that this will be the case. As each of his decisions affects the economy for a year and a half, the governor indicated that rates will gradually fall as soon as the trend is felt.
The inflation rate decreased to 3.9% in 2023 compared to its peak of 6.8% in 2022.
Further details will follow.