OTTAWA — Bank of Canada Gov. Tiff Macklem told Canadian lawmakers Tuesday that the central bank remains “far from the goal” of reaching 2% inflation while reiterating the central bank’s rate-rising campaign is near an end.
Macklem told members of the Canadian senate that it will take time to return to a period of solid growth and low inflation. The central bank’s mandate is to reach and achieve 2% inflation, and the latest data indicate annual inflation in Canada sits in the 7% range.
Last week, the Bank of Canada surprised markets somewhat by slowing the pace of rate increases to a half-percentage point, to 3.75%. Traders and economists had expected a 0.75-percentage-point increase. The governor told senators that higher interest rates are beginning to weigh on economic growth, and the central bank expects expansion to stall — or close to zero — from now until mid-2023.
“We think [the policy rate] needs to go up but we do think we’re getting closer to the end,” Macklem said. He added it’s possible Canada could record two consecutive quarters of negative growth–or what’s generally deemed a recession–although arguing the country would avoid a “severe” downturn in economic activity. “We need a period of lower growth,” he said.
The governor kept close to last week’s script, in terms of defending the central bank’s decisions in an environment of historically high inflation. Annual inflation in Canada peaked at 8.1% in June but has since slowed to 6.9%, per data covering September.
Macklem said he is aware that the rapid rise in interest rates this year–a total of 3.5 percentage points — “will be a difficult transition for some but there’s not really an alternative. We have to get through this period to relieve those price pressures to get inflation back down so that we can get back to sustainable growth.”
As a custom, Bank of Canada officials testify before both the upper and lower chambers of the Canadian parliament after releasing its quarterly outlook of the economy.
