Bank of Canada Governor Tiff Macklem expects 2024 to be a transition year as rising interest rates slow the economy, allowing inflation to moderate.
In his final speech of the year, the governor predicted a slow economy next year and discussed the conditions needed for the central bank to begin considering a rate cut.
“The effects of past rate increases will continue to ripple through the economy, slowing spending and limiting growth and employment,” read Mr. Macklem’s prepared remarks. Unfortunately, this is what must be done to properly curb inflation. »
This weakness would help bring inflation back towards target, he adds, which would open the door to discussions on a rate cut.
He cautions, however, that there are no guarantees and that obstacles could arise along the way.
“When the Governing Council is convinced that price stability is being restored, then consideration will be given to lowering the policy rate, and when to do so,” Mr. Macklem said. “I know it’s tempting to start discussing these declines, but it’s still too early to think about it. »
Until then, the governor says the central bank will continue to evaluate whether interest rates are high enough to temper inflation.
He points out that the global economy is more volatile, requiring greater flexibility from central banks.
The Bank of Canada has chosen to maintain its key rate at 5% in its last three decisions. Most economists expect the next change to be a reduction and to occur next year.
Mr. Macklem’s speech also addresses lessons the central bank has learned this year, including the importance of communication.
To this end, the central bank now plans to hold press conferences during every interest rate decision, rather than once a quarter.
“We want households, businesses and different population groups to understand what we do and our motivations. This step is part of my commitment to explain our actions,” he said.