Bank of Canada Governor Tiff Macklem has stated that Canada interest rates are expected to decrease in 2024, marking what he foresees as a transitional year for the Canadian economy.
During an exclusive interview with BNN Bloomberg’s Amanda Lang, Macklem anticipated that Canada interest rates could start to decrease “sometime in 2024,” although he didn’t offer a more specific timeline.
“We’re placing a strong emphasis on core inflation,” he stated in the television interview set to air on Friday. He added that the central bank will require “several months of sustained downward momentum in core inflation” before considering a reduction in Canada interest rates.
“If you examine our projection, it’s expected to happen sometime next year, but I’m not going to specify a date.” This aligns with economists’ forecasts for rate cuts in the second or third quarter of 2024.
Confidence Grows in Inflation Control, Says Tiff Macklem
The Bank of Canada initiated interest rate hikes in March 2022 to control inflation and return it to the target of two percent. Concurrently, Canada’s inflation rate has steadily decreased, registering at 3.1 percent in October, a decline from its peak of 8.1 percent in June 2022.
“We are growing more confident that monetary policy is effective, and conditions are aligning to bring us back to two-per-cent inflation. However, it’s not yet assured; we haven’t reached that point,” stated Macklem.
“There are a few more factors we need to observe to enhance our confidence in returning to two percent, and we’re closely monitoring those.”
The inflation data for November is anticipated on Tuesday.
Despite Macklem’s growing confidence in inflation’s trajectory, he anticipates some near-term economic challenges and pain.
“We anticipate it to be a transitional year. The initial phase won’t be pleasant, and I won’t sugarcoat it,”
“As we progress later into the year, we anticipate growth to pick up, and inflation should continue its descent, approaching the target by the end of next year. While we’re not there yet, we’re making progress.”
Macklem Anticipates Moderate Decrease in Canada Interest Rates
Regarding Canada interest rates, Macklem mentioned he doesn’t believe rates will reach the rock-bottom levels witnessed by Canadians before the pandemic.
“I find it reasonable to anticipate a decrease, but it’s unlikely they’ll return to pre-COVID-19 levels,”
“We experienced a decade of exceptionally low Canada interest rates after the global financial crisis, and there are valid reasons to believe we won’t revert to those very low rates. This will require an adjustment.”
While interest rate hikes aim to decelerate the economy, they also elevate the risk of a recession. If the economy contracts in the fourth quarter, Canada could technically enter a recession, marked by two consecutive quarters of negative growth.
However, Macklem expressed confidence that if Canada does face a recession in the coming months, it won’t endure for an extended period.
“We don’t require a profound recession; we can achieve two percent inflation without it. I’m not asserting we anticipate nearly zero growth for the next two to three quarters. There might be some modest declines or gains, but even in the case of slight negatives, it wouldn’t constitute a deep recession.”
The Bank of Canada, along with many private-sector economists, foresees growth below 1% next year as consumers and businesses reduce spending. The central bank’s October forecast projected a 0.9% growth in gross domestic product for 2024.
The complete Taking Stock interview with Macklem is scheduled to broadcast on Friday, Dec. 22, at 6 p.m. on BNN Bloomberg, 9 p.m. on CP24, and 10:30 p.m. on CTV News Channel.