© Reuters. FILE PHOTO: Governor of the Bank of Canada Tiff Macklem walks outside the Bank of Canada building in Ottawa, Ontario, Canada June 22, 2020. REUTERS/Blair Gable/File Photo/File Photo
By Steve Scherer and David Ljunggren
OTTAWA, Nov 22 (Reuters) – Bank of Canada Governor Tiff Macklem on Wednesday said interest rates might be at their peak, given that excess demand has vanished and weak growth is expected to persist for many months.
The Bank of Canada (BoC) – seeking to control soaring inflation – hiked rates 10 times between March of last year and July 2023, pushing them up to a 22-year high of 5.00%. The inflation rate, which spiked to more than 8% last year, eased to 3.1% in October but is still above the bank’s 2% target.
“This tightening of monetary policy is working, and interest rates may now be restrictive enough to get us back to price stability,” Macklem told the Saint John Region Chamber of Commerce in the Atlantic province of New Brunswick (NYSE:).
“We expect the economy to remain weak for the next few quarters,” he added. “The excess demand in the economy that made it too easy to raise prices is now gone.”
Macklem reiterated that the bank was prepared to raise rates again if needed.
While Macklem told CBC in an interview late last month that rates might have peaked, his remarks on Wednesday marked the first time he has said formally that borrowing costs could be high enough.
His dovish comments are in line with predictions from analysts and money markets that the bank’s next move will be to cut rates by the middle of next year.
But when the BoC’s policy setting governing council last met and announced on Oct. 25 that rates would remain on hold, some members thought another increase in borrowing costs would be needed, according to a summary of their deliberations.
Macklem spoke a day after the government released its Fall Economic Statement, which included new spending measures aimed at providing more affordable housing. It said deficit spending would be much higher than previously forecast in coming years, with debt coming down more slowly.
In recent months, Macklem has said monetary and fiscal policy should be rowing in the same direction to bring down inflation.
In his speech on Wednesday, Macklem recognized the impact of restrictive monetary policy.
“Higher interest rates are squeezing many Canadians, but these rates are relieving price pressures,” Macklem said.
“To return to low inflation and stable growth in the years ahead, we need these higher interest rates and slow growth in the short term,” he added.
On Nov 9, the bank said the era of super-low interest rates was likely over and warned businesses and households to plan for higher borrowing costs than they have been used to in recent years. Some 60% of mortgage holders have yet to renew their home loans at higher rates, the BoC says.