Governor Macklem says more rate cuts are justified if prices keep slowing.
Governor Tiff Macklem led G7 nations June 5 with a cut from the highest policy rate since 2001, saying he's more confident inflation is settling down and that more reductions can be justified if that trend continues. Inflation slowed to 2.7% in the June figures released Tuesday, after moving up to 2.9% in May, the kind of bump Macklem said could happen on the way back to target.
With inflation lingering above the 2% goal for three years officials have cautioned the pace of cuts will be moderate, and it is unclear whether this decision will again reference the potential for multiple cuts. Macklem has said he is nowhere near the limit of how much he can diverge from the Fed, and that the Bank does not have to crush the economy with tight policy to restore price stability.
NEW TIMING ON MEETING TARGET?
Officials are looking at a broader range of inflation measures such as wage gains and corporate pricing power and have said there are broad signs of relief since their 10 prior rate hikes. While some wage measures still top 5% the jobless rate has climbed more than a percentage point in the last year amid record immigration. (See MNI INTERVIEW: BOC To Slowly Cut To Neutral Over 2 Yrs- Stillo)
Canada’s stretched housing market has also remained tame since June’s rate cut, rather than moving into yet another cycle of froth that could make cutting rates more difficult. Officials instead have scope to help borrowers being hit with painful re-financings of popular fixed-rate mortgages that reset every five years.
One signal of the Bank's intentions would be a new economic forecast and a nudge to the view that inflation will return to the 2% target sometime in 2025. Core inflation rates have slowed back within the Bank's 1% to 3% target range, which should give officials more certainty about where things are headed.
Macklem has signaled there's no pre-programmed rate path, either for the cut-at-every-meeting some economists predict or moving every second decision. "If inflation continues to ease, and our confidence that inflation is headed sustainably to the 2% target continues to increase, it is reasonable to expect further cuts to our policy interest rate," he told reporters after the June cut. "But we are taking our interest rate decisions one meeting at a time."
Canadian inflation rate, headline and ex-gasoline
