Tiff Macklem: Release of the Monetary Policy Report
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, 23 October 2024.
* * *
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 21⁄2%. 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 13⁄4% 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 21⁄4% 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.