The Bank of Canada has recently lowered its policy interest rate by 50 basis points, marking the fourth consecutive decrease since June. The policy rate now stands at 3.75%. Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers addressed the House of Commons Standing Committee on Finance to discuss this decision and the latest Monetary Policy Report.
Governor Macklem explained that the reduction in the interest rate was driven by inflation returning to the 2% target. He stated, "We took a bigger step because inflation is now back to the 2% target, and we want to keep it close to the target." Recent data indicates that headline inflation fell to 1.6% in September, with core inflation measures also below 2½%.
The central bank's focus remains on maintaining low, stable inflation while fostering economic growth. "Now our focus is to maintain low, stable inflation. We need to stick the landing," said Macklem. The recent interest rate cut aims to stimulate demand and support economic activity, which has been soft despite picking up earlier this year.
Looking forward, the Bank of Canada expects gradual economic strengthening through 2025 and 2026 due in part to lower interest rates. While population growth may slow down, consumer spending per capita is anticipated to rise alongside residential investment growth driven by housing demand.
The bank's forecast projects inflation staying around the target level over the next few years. Risks remain regarding household spending and business investment recovery pace or potential geopolitical uncertainties impacting projections.
"If the economy evolves broadly in line with our forecast, we anticipate cutting our policy rate further," Macklem noted. Future decisions on rate cuts will depend on ongoing assessments of economic conditions and their implications for inflation.
Concluding his statement, Macklem acknowledged past challenges posed by high inflation but emphasized relief as monetary policy efforts begin yielding results: "High inflation and interest rates have been a heavy burden for Canadians... With inflation back to target and interest rates continuing to come down, families, businesses and communities should feel some relief."
Both Macklem and Rogers expressed their readiness for questions from committee members following these remarks.