Tiff Macklem: Monetary Policy Decision
Opening statement by Mr Tiff Macklem, Governor of the Bank of Canada and Ms
Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, at the press
conference following the monetary policy decision, Ottawa, Ontario, 11 December 2024.
* * *
Good morning. I'm pleased to be here with Senior Deputy Governor Carolyn Rogers to
discuss our policy decision.
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 31⁄4%.
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 11⁄2% 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 and 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.
With that, the Senior Deputy Governor and I would be pleased to take your questions.