Speaking to reporters following a speech in Toronto, Bank of Canada Governor Tiff Macklem said it will take time to bring inflation back down to the central bank’s 2% target and that it is “too early” to consider cutting interest rates.
Responding to a journalist’s question, Macklem said he think it’s “too early to really be thinking about interest rate cuts” and stressed that he remains worried about risks to the economy.
The Bank of Canada has kept its trendsetting overnight interest rate unchanged at 4.50% at its last two policy meetings and said it will continue to pause further interest rate increases based on economic data.
The central bank’s next decision on interest rates is scheduled for June 7, with most economists and traders expecting another hold.
However, Macklem again emphasized that the Bank of Canada is prepared to raise interest rates further, if needed, to lower inflation.
“If we start to see signs that inflation is likely to get stuck materially above our two per cent target, we are prepared to raise rates further," he said during a speech to the Toronto Region Board of Trade.
In his remarks, Macklem also discussed the uncertainty caused by the failures of several banks in the U.S. and Europe and the impact that it is having on the global financial system.
“If financial stress were to lead to more tightening than expected and if this were to persist, we would need to take this into consideration as we set the policy rate to achieve our inflation target,” Macklem said in his speech.
Owing largely to stress in the global banking system, traders in overnight swaps markets are betting that the Bank of Canada will begin to lower interest rates by year’s end, with a 25-basis point cut priced in for December.
Canada’s inflation rate is currently at 4.3%, down from a peak of 8.1% reached in June 2022.
