The central bank over the past 11 months has lifted interest rates at a record pace to 4.5% to tame inflation, which was 6.3% in December, still well above the bank's 2% target. Last month, it said it would hold off on further moves to let the effects of past increases sink in. "If new data are broadly in line with our forecast and inflation comes down as predicted, then we won't need to raise rates further," Macklem said in a speech to financial analysts in Quebec City. "Inflation is turning the corner. Monetary policy is working," Macklem said, adding that economic growth would be "close to zero" through the third quarter of this year. The Federal Reserve last week said it had turned a key corner in the fight against high inflation but that "victory" would still require higher interest rates. Federal Reserve Chair Jerome Powell on Tuesday said it would take "quite a bit of time" to bring U.S. inflation back to the 2% target. Macklem told Bloomberg News the central bank needed time to gauge how households and businesses were adapting to higher interest rates before it made further moves, according to a Bloomberg report. Rate hikes had hit Canadian homeowners hard, Bloomberg quoted him as saying on Tuesday.
He added that the real estate market would probably
soften further before it stabilized later this year.
"The head of the Bank of Canada seems quite comfortable
sitting on the sidelines even as his U.S. counterpart will be
discussing the need for further monetary tightening south of the
border," Royce Mendes, head of macro strategy at Desjardins
Group, said in a note.
The Canadian dollar was trading nearly unchanged at 1.3445 per U.S. dollar, or 74.38 U.S. cents, in choppy trading after the speech by Macklem and comments by Powell.
On Monday, a median of market participants surveyed by the central bank forecast that borrowing costs would come down by half a percentage point by the end of this year and would fall further next year. When asked by reporters about the survey, Macklem reiterated that it was "really far too early to be thinking about cutting rates. ... We are pausing interest rate hikes to assess whether we've raised interest rates enough." In his prepared remarks Macklem said, "We are prepared to raise interest rates further." But his overall tone was more dovish than in his comments following last month's rate hike, when he told Reuters he was not even thinking about a cut. "We need to pause rate hikes before we slow the economy and inflation too much," he said in his speech. (Reporting by David Ljunggren and Steve Scherer; Additional reporting by Fergal Smith in Toronto and Urvi Dugar in Bengaluru; Editing by Mark Porter and Bradley Perrett)
