'We are getting closer' to cutting interest rates, Bank of Canada governor tells MPs
CBC
The Bank of Canada is getting closer to cutting interest rates as inflation shows signs of coming down and staying down, the central bank's governor, Tiff Macklem, told MPs Thursday.
"We do see renewed downward momentum in underlying inflation. The message to Canadians is, we are getting closer. We are seeing what we need to see and we just need to be confident that it will be sustained," Macklem said during an appearance before the House of Commons finance committee.
Economic growth has stalled, there's an excess supply of goods, wage increases have stabilized and the labour market has cooled "from very overheated levels," which has helped to bring down prices, Macklem said.
"Our key indicators of inflation have all moved in the right direction," he said, pointing to data on "core inflation" that strips out more volatile price swings, like food and energy prices.
"We've come a long way in the fight against inflation, and recent progress is encouraging."
The next opportunity for the central bank to cut rates comes on June 5.
Macklem's upbeat tone could be good news for homeowners and would-be buyers who have been forced to buy or refinance a home with interest rates at 20-year highs.
He said the bank's current policy rate of five per cent has been "restraining" demand for homes.
But the Bank of Canada is now projecting "a strong pick-up in housing over the course of this year" with "some increase in housing prices," Macklem said.
Acknowledging that higher rates have been hard on Canadians and some sectors of the economy, like real estate, the governor said the bank doesn't "want to keep monetary policy this restrictive for longer than we have to."
But Macklem also warned that the Bank's overnight rate likely won't return to what it was during the depths of COVID — when it was effectively zero — or even what it was before the pandemic, when it clocked in at 1.75 per cent throughout 2019.
Macklem said he's "concerned" that borrowers are expecting a return to the record-low rates that were the norm for much of the post-global recession period from 2009 to 2021.
"Interest rates are certainly not going to the emergency low levels we had during COVID. They're unlikely to even get back to the pre-COVID levels," he said.
He also warned that, when the Bank does start reducing rates, "it's likely to be a pretty gradual path."
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