(Kitco News) - After raising interest rates eight times in 2022, the Bank of Canada is now on pause as it evaluates the impact its aggressive monetary policy has had on the Canadian economy, according to the latest comments from Tiff Macklem, Governor of the central bank.
Tuesday, in a speech hosted by CFA Quebec, Macklem said that higher interest rates are working to cool down consumer prices; however, he added that it will take time for inflation to fall back to its 2% target.
“Monetary policy doesn’t work as quickly or painlessly as everyone would like, but it works. And it will be worth it when Canadians can once again count on low, stable and predictable inflation,” he said in his prepared remarks.
Looking ahead, Macklem said that the BoC’s monetary policy will depend on how economic conditions evolve. He noted that the central bank’s pause depends on whether inflation falls in line with expectations or not.
“With economic growth slowing to close to zero in the first half of 2023, inflation should drop to around 3% in the middle of the year and reach the 2% target in 2024. We’ve already seen inflation come down for the prices of many goods. But inflation in the services sector will take longer to cool,” he said.
Although there are growing risks that the global economy slows more than expected, with the threat of a recession looming on the horizon, Macklem said that inflation remains the central bank’s focus.
“With inflation well above our 2% target, we’re most concerned about risks that could push it higher,” he said.
Macklem noted that higher than expected global energy prices and a strong job market are factors that could keep inflation elevated longer-than expected.
“If new evidence begins to accumulate that inflation is not declining in line with our forecast, we are prepared to raise our policy rate further,” he said.
Macklem’s comments is not having much impact on gold prices against the Canadian dollar. Spot gold last traded at C$2,414.72 an ounce, up 0.16% on the day.
Last month, the Bank of Canada hiked interest rates by 25 basis points to 4.5%.
