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MNI BRIEF: BOC Governor Tiff Macklem Opening Statement

Bank of CanadaPolicy NewsCentral Bank NewsHomepageCanadaBriefStoryRegionNorth America

Good morning. I’m pleased to be here with Senior Deputy Governor Carolyn
Rogers to discuss the October Monetary Policy Report and our policy decision.

Today, we lowered the policy interest rate by 50 basis points. This is our fourth
consecutive decrease since June and brings our policy rate to 3.75%.

We took a bigger step today because inflation is now back to the 2% target and
we want to keep it close to the target.

In the past few months, inflation has come down significantly from 2.7% in June
to 1.6% in September. Recent indicators suggest it will be around 2% in October.
Price pressures are no longer broad-based, and both our measures of core
inflation are now under 2.5%. Our surveys also find that business and consumer
expectations of inflation have shifted down and are nearing normal. All this
suggests we are back to low inflation. This is good news for Canadians.

Now our focus is to maintain low, stable inflation. We need to stick the landing.
That means the upward and downward forces on inflation need to balance out.
Household spending and business investment have picked up this year, but
remain soft. This softness has helped take the remaining steam out of inflation.
But with inflation back to 2%, we want to see growth strengthen. Today’s interest
rate decision should contribute to a pickup in demand.

The Bank forecasts inflation will remain close to the target over the projection
horizon. The upward pressure from shelter and other services is expected to
gradually diminish. With stronger demand, the downward pressure on inflation is
also forecast to dissipate, keeping the upward and downward forces roughly
balanced.

If the economy evolves broadly in line with this forecast, we anticipate cutting our
policy rate further to support demand and keep inflation on target. The timing and
pace of further interest rate cuts will depend on incoming information and our
assessment of its implications for the inflation outlook. We will take our monetary
policy decisions one at a time.

Let me expand on what we’re seeing in the economy, and how that played into
our deliberations.

After stalling in the second half of last year, the economy grew by about 2% in
the first half of this year, and we expect growth of 1.7% in the second half. The
economy remains in excess supply and the labour market is soft. The
unemployment rate was 6.5% in September. Job layoffs have remained modest
but business hiring has been weak, which has particularly affected young people
and newcomers to Canada. Simply put, the number of workers has increased
faster than the number of jobs.

Looking ahead, GDP growth is forecast to gradually strengthen to around 2% in
2025 and 2.25% in 2026, supported by lower interest rates. This forecast largely
reflects the net effect of a gradual pick up in consumer spending per person and
slower population growth. We also expect growth in residential investment to rise
as strong demand for housing lifts sales and spending on renovations. Business
investment is expected to strengthen as demand picks up, and exports should
remain strong, supported by robust demand from the United States.

The decline in inflation in recent months reflects the combined effects of lower
global oil prices, slightly lower shelter price inflation in Canada, and lower prices
for many consumer goods like cars and clothes. Going forward, we can expect to
continue to see some monthly fluctuations in inflation. But overall, inflation is
expected to remain close to target over the projection horizon as upward
pressure from shelter and other services gradually diminishes and excess supply
in the economy is absorbed.

There are risks around our inflation outlook. The biggest downside risk to inflation
is that it could take longer than anticipated for household spending and business
investment to pick up. Our recent surveys suggest businesses expect subdued
sales and their hiring and investment plans are modest. On the upside, lower
interest rates could fuel a stronger rebound in housing activity or wage growth
could remain high relative to productivity. There is also elevated geopolitical
uncertainty and the risk of new shocks.

Overall, we view the risks around our inflation forecast as reasonably balanced.
With inflation back to 2%, we are now equally concerned about inflation coming
in higher or lower than expected. The economy functions well when inflation is
around 2%.

Let me conclude.

High inflation and interest rates have been a heavy burden for Canadians. With
inflation now back to target and interest rates continuing to come down, families,
businesses and communities should feel some relief.

The Bank is committed to maintaining price stability for Canadians by keeping
inflation close to the 2% target.
With that summary, the Senior Deputy Governor and I would be pleased to take
your questions.

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Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.

Good morning. I’m pleased to be here with Senior Deputy Governor Carolyn
Rogers to discuss the October Monetary Policy Report and our policy decision.

Today, we lowered the policy interest rate by 50 basis points. This is our fourth
consecutive decrease since June and brings our policy rate to 3.75%.

We took a bigger step today because inflation is now back to the 2% target and
we want to keep it close to the target.

In the past few months, inflation has come down significantly from 2.7% in June
to 1.6% in September. Recent indicators suggest it will be around 2% in October.
Price pressures are no longer broad-based, and both our measures of core
inflation are now under 2.5%. Our surveys also find that business and consumer
expectations of inflation have shifted down and are nearing normal. All this
suggests we are back to low inflation. This is good news for Canadians.

Now our focus is to maintain low, stable inflation. We need to stick the landing.
That means the upward and downward forces on inflation need to balance out.
Household spending and business investment have picked up this year, but
remain soft. This softness has helped take the remaining steam out of inflation.
But with inflation back to 2%, we want to see growth strengthen. Today’s interest
rate decision should contribute to a pickup in demand.

The Bank forecasts inflation will remain close to the target over the projection
horizon. The upward pressure from shelter and other services is expected to
gradually diminish. With stronger demand, the downward pressure on inflation is
also forecast to dissipate, keeping the upward and downward forces roughly
balanced.

If the economy evolves broadly in line with this forecast, we anticipate cutting our
policy rate further to support demand and keep inflation on target. The timing and
pace of further interest rate cuts will depend on incoming information and our
assessment of its implications for the inflation outlook. We will take our monetary
policy decisions one at a time.

Let me expand on what we’re seeing in the economy, and how that played into
our deliberations.

After stalling in the second half of last year, the economy grew by about 2% in
the first half of this year, and we expect growth of 1.7% in the second half. The
economy remains in excess supply and the labour market is soft. The
unemployment rate was 6.5% in September. Job layoffs have remained modest
but business hiring has been weak, which has particularly affected young people
and newcomers to Canada. Simply put, the number of workers has increased
faster than the number of jobs.

Looking ahead, GDP growth is forecast to gradually strengthen to around 2% in
2025 and 2.25% in 2026, supported by lower interest rates. This forecast largely
reflects the net effect of a gradual pick up in consumer spending per person and
slower population growth. We also expect growth in residential investment to rise
as strong demand for housing lifts sales and spending on renovations. Business
investment is expected to strengthen as demand picks up, and exports should
remain strong, supported by robust demand from the United States.

The decline in inflation in recent months reflects the combined effects of lower
global oil prices, slightly lower shelter price inflation in Canada, and lower prices
for many consumer goods like cars and clothes. Going forward, we can expect to
continue to see some monthly fluctuations in inflation. But overall, inflation is
expected to remain close to target over the projection horizon as upward
pressure from shelter and other services gradually diminishes and excess supply
in the economy is absorbed.

There are risks around our inflation outlook. The biggest downside risk to inflation
is that it could take longer than anticipated for household spending and business
investment to pick up. Our recent surveys suggest businesses expect subdued
sales and their hiring and investment plans are modest. On the upside, lower
interest rates could fuel a stronger rebound in housing activity or wage growth
could remain high relative to productivity. There is also elevated geopolitical
uncertainty and the risk of new shocks.

Overall, we view the risks around our inflation forecast as reasonably balanced.
With inflation back to 2%, we are now equally concerned about inflation coming
in higher or lower than expected. The economy functions well when inflation is
around 2%.

Let me conclude.

High inflation and interest rates have been a heavy burden for Canadians. With
inflation now back to target and interest rates continuing to come down, families,
businesses and communities should feel some relief.

The Bank is committed to maintaining price stability for Canadians by keeping
inflation close to the 2% target.
With that summary, the Senior Deputy Governor and I would be pleased to take
your questions.