MNI BRIEF: BOC Governor Tiff Macklem Opening Statement

Today, we lowered the policy interest rates by 50 basis points. This is our fifth
consecutive decrease since June and brings our policy rate to 3.25%. 
Monetary policy has worked to bring inflation back to the 2% target. Our policy 
focus now is to keep inflation close to target.

Let me outline what we’re seeing in the economy, and how that played into our 
decision.

In the United States, the economy continues to show broad-based strength and
inflation has been holding steady. The US dollar has appreciated against most 
other currencies, including the Canadian dollar. 

Canada’s economy grew by 1% in the third quarter, which was slower than we 
expected. Recent data also suggest growth will be lower than projected in the 
final quarter of this year. 

Growth in the third quarter was pulled down by business investment, inventories 
and exports. But consumer spending and housing activity both picked up, as 
lower interest rates started to boost household spending. 

Canada’s job market is still softening. Businesses have continued hiring, but the 
number of people looking for work has been increasing faster than the number of 
jobs. The unemployment rate rose to 6.8% in November. It has been especially 
hard for young people and newcomers to Canada to find work.

A number of policy measures have been announced that will affect the outlook 
for growth and inflation in the months ahead. The most significant of these is 
reduced immigration targets, which suggest GDP growth next year will be lower
than we forecast in October. The effects of lower population growth on the 
inflation outlook will likely be more muted because reduced immigration dampens 
both demand and supply in the economy. We’ll have more to say on this when 
we release our next forecast in January.

Other federal and provincial government policies—including a temporary GST 
break on some consumer products, one-time payments to individuals, and 
changes to mortgage rules—will likely affect the dynamics of household spending
and inflation in the months ahead. Again, we will have more to say on this in 
January. As always, we will look through effects that are temporary and focus on
underlying trends to guide our policy decisions. 

CPI inflation has been about 2% since the summer, and we expect it to be close 
to target, on average, over the next couple of years. We thought elevated shelter 
price inflation would continue to ease, and it has. And the downward pressure on 
inflation from goods prices has also moderated as predicted. We expect the GST 
holiday to temporarily lower inflation to around 1.5% in January, but that effect
will be unwound after the GST break ends in mid-February. We will be looking at 
measures of core inflation to help us assess the trend in CPI inflation.

While the upward and downward pressures on prices have been moderating, 
risks to the inflation outlook remain. Elevated wage increases combined with 
weak productivity could push inflation up. Or the economy could keep growing 
below its potential, which would pull inflation down. 

In addition, the economic outlook is clouded by the possibility of new tariffs on 
Canadian exports to the United States. No one knows how this will play out in the 
months ahead—whether tariffs will be imposed, whether exemptions get agreed, 
or whether retaliatory measures will be put in place. This is a major new
uncertainty.

To summarize, inflation is back to the 2% target and lower interest rates are 
beginning to pass through to stronger spending by households. But the economy 
remains in excess supply and the growth outlook now appears softer than we 
projected in October. 

With inflation back to target, we have cut the policy rate by 50 basis points at 
each of the last two decisions because monetary policy no longer needs to be 
clearly in restrictive territory. We want to see growth pick up to absorb the 
unused capacity in the economy to keep inflation close to 2%.
The Governing Council has reduced the policy rate substantially since June, and 
those cuts will be working their way through the economy. Going forward, we will 
be evaluating the need for further reductions in the policy rate one decision at a 
time.

In other words, with the policy rate now substantially lower, we anticipate a more 
gradual approach to monetary policy if the economy evolves broadly as 
expected. Our decisions will be guided by incoming information and our 
assessment of the implications for the inflation outlook. 

The Bank is committed to maintaining price stability for Canadians by keeping 
inflation close to the 2% target.