The Current18:56Why Tiff Macklem won’t rule out more rate hikes
Bank of Canada Governor Tiff Macklem says he knows aggressive rate hikes have caused financial hardship for many Canadians, but he can’t say when those rates will come down again.
“I understand exactly how people are feeling, but I also don’t want to give them false precision,” Macklem told The Current’s Matt Galloway.
“When we start to see clear evidence that we’re on a path back to two per cent inflation … that’s when we can start to have the discussion about lowering interest rates.”
The Bank’s key interest rate climbed from 0.25 per cent to five per cent between March 2022 and July 2023, driven by 10 rate hikes in a row. Those hikes were designed to curb inflation, which became a global concern as the pandemic waned. Canada reached a four-decade inflation high of 8.1 per cent in the summer of 2022, and fell to 3.8 per cent last month.
That drop in inflation allowed the Bank to hold the rate steady at five per cent on Wednesday, offering some relief to mortgage holders who have seen their monthly payments increase — some by thousands of dollars.
Featured VideoCBC’s Andrew Chang looks at the Bank of Canada’s latest move to hold its key interest rate. Why haven’t rates dropped? And how does it impact your mortgage, loans and cost of living?
When pressed on when Canadians can expect the rates to start dropping, Macklem said the key milestone of two per cent inflation is expected by 2025.
“The economy’s not overheated anymore … we do think there’s more inflation relief in the pipeline. And if that comes through, we won’t have to raise rates further,” he said.
The Bank’s forecasts place inflation at around 3.5 per cent until summer of 2024, but “if we’re lucky, we’ll start to see clearer evidence it’s coming down before that,” he said.
For Canada, bringing inflation fully under control will require a period of very slow growth, Macklem said, but he rejected the idea that the country needs a recession.
“A recession is a big decline in output and a big increase in unemployment. We don’t need that. We don’t want that,” he said.
“We think there is a path to getting inflation down with very weak growth.”
Macklem added that the Bank has “left the door open” to further rate hikes, if inflation persists. “But the evidence we’ve got in the last few months is giving us the confidence to be patient,” he said.
Rate hikes painful, but doing nothing is ‘worse’
Speaking to CBC Radio’s Metro Morning on Wednesday, economist Frances Donald said she thinks the Bank might not hike rates further, but they might be reluctant to admit that.
“I’m not sure they can say the quiet part out loud,” said Donald, chief economist at Manulife Investment Management.
“If people believe there’s rate cuts, maybe they’ll start to go out and inflate housing again and spend, and then we’re kind of back…
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