Tiff Macklem: Release of the Monetary Policy Report
Opening statement by Mr Tiff Macklem, Governor of the Bank of Canada, at the press
conference following the release of the Monetary Policy Report, Ottawa, Ontario, 24
January 2024.
* * *
Good morning. I'm pleased to be here with Senior Deputy Governor Carolyn Rogers to
discuss today's policy announcement and the Bank of Canada's Monetary Policy Report
(MPR).
Today, we maintained our policy interest rate at 5%. We are also continuing our policy
of quantitative tightening.
Our message today is twofold.
First, monetary policy is working to relieve price pressures, and we need to stay the
course. Inflation is coming down as higher interest rates restrain demand in the
economy. But inflation is still too high, and underlying inflationary pressures persist. We
need to give these higher rates time to do their work.
Second, with overall demand in the economy no longer running ahead of supply,
Governing Council's discussion of monetary policy is shifting from whether our policy
rate is restrictive enough to restore price stability, to how long it needs to stay at the
current level.
Let me give you some economic context for these considerations and talk about the
implications for monetary policy.
Global growth has slowed, but not quite as much as we thought it would, largely
because of the surprising resilience of the US economy. Inflation is easing in most
major economies, but it remains too high and is not expected to reach central banks'
targets until 2025.
In Canada, economic growth stalled in the middle of 2023. For many Canadians, the
combination of higher prices and higher interest rates has been difficult. But past
interest rate increases have helped the economy rebalance, and this is relieving price
pressures. Lower energy prices and improvements in global supply chains have also
helped to bring inflation down.
Growth is expected to remain flat in the near term. With weak demand in the economy,
upward pressure on prices should continue to moderate, and inflation is expected to
ease further. The share of consumer price index (CPI) components that are rising faster
than 3% has declined substantially and should continue to normalize.
But tightness in some parts of the economy is continuing to hold inflation up. The most
prominent of these is housing. Inflation in shelter services remains high-close to
7%because of rising mortgage interest costs, higher rents and other housing costs. And
while food prices are not increasing as fast as they were, food inflation is still about 5%.
Finally, inflation in services excluding shelter has improved, but there are signs that
price pressures remain.
All this push and pull on inflation means that further declines in inflation are likely to be
gradual and uneven. That suggests the path back to our 2% target will be slow, and
risks remain.
Overall, our outlook for both growth and inflation is largely unchanged from the October
Report. Economic growth is expected to be modest in 2024-weak in the first half before
picking up around the middle of the year and rising to about 21⁄2% in 2025.
With downward and upward forces largely offsetting in the near term, CPI inflation is
expected to remain close to 3% over the first half of this year. It is then expected to
ease to about 21⁄2% by year end and return to target in 2025.
In two weeks, we will release our summary of deliberations, which provides more detail
about our deliberations. But let me give you a sense of our discussion.
As always, Governing Council focused on the decision at hand-the current policy rate.
And there was a clear consensus to maintain our policy rate at 5%.
We did, of course, discuss where we see the economy and inflation going and what that
could mean for monetary policy going forward. What came through in the deliberations
is that Governing Council's discussion about future policy is shifting from whether
monetary policy is restrictive enough to how long to maintain the current restrictive
stance.
That doesn't mean we have ruled out further policy rate increases. If new developments
push inflation higher, we may still need to raise rates. But what it does mean is that if
the economy evolves broadly in line with the projection we published today, I expect
future discussions will be about how long we maintain the policy rate at 5%. Governing
Council is concerned about the persistence of underlying inflation. We want to see
inflationary pressures continue to ease and clear downward momentum in underlying
inflation.
We also discussed the risks to the economy and inflation. We are trying to balance the
risks of over- and under-tightening. We don't want to cool the economy more than
necessary. But we don't want Canadians to have to continue to live with elevated
inflation either. We remain focused on a number of indicators of underlying inflationary
pressures. We need to see further and sustained easing of core inflation. With the
economy now looking to be in modest excess supply, demand pressures have abated.
Corporate pricing behaviour has continued to normalize. At the same time, measures of
near-term inflation expectations and wage growth suggest that underlying inflationary
pressures remain.
Let me conclude. We've come a long way from the inflation peak in 2022. Monetary
policy is working, and we need to continue to let it work. We remain resolute in our
commitment to return inflation to the 2% target.
With that summary, the Senior Deputy Governor and I would be pleased to take your
questions.