Bank of Canada Governor Tiff Macklem has reiterated the importance of pausing interest rates to assess their impact on the economy.
In a speech delivered at a business luncheon in Quebec City, Macklem defended his previously announced decision to pause rate increases, saying that the central bank needs to hold rates for the time being to avoid slowing the economy too much.
“We need to pause rate hikes before we slow the economy and inflation too much,” said Macklem. “We shouldn’t keep raising rates until inflation is back to 2 per cent.”
Macklem added that it can take 18 to 24 months to see the full effects of higher borrowing costs. The Bank of Canada’s benchmark interest rate has risen from 0.25% last March to 4.50% today.
Macklem also said that data shows inflation in Canada is declining, telling the audience that “recent developments have reinforced our confidence that inflation is coming down.”
Macklem has forecast that inflation will fall to 3% by the middle of this year.
The central bank governor said that in coming months he will be watching key metrics such as prices for services, wage growth, and headline inflation numbers.
The governor said he expects growth in output to be “close to zero” in the first three quarters of this year, which will allow the economy to move from excess demand to modest excess supply.
Inflation in Canada is currently at an annualized rate of 6.3%, which is more than three times higher than the Bank of Canada’s 2% target.
