tiff macklem : opening statement before the house of commons standing committee on finance opening statement by mr tiff macklem, governor of the bank of canada, before the house of commons standing committee on finance, ottawa, ontario, 23 november 2022. * * * good evening. i'm pleased to be here with senior deputy governor carolyn rogers to discuss our recent policy announcement and the bank of canada's monetary policy report ( mpr ). in october, we raised the policy interest rate by 50 basis points to 3. 75 %. this is the sixth consecutive increase since march. we also expect our policy rate will need to rise further. how much further will depend on how monetary policy is working to slow demand, how supply challenges are resolving and how inflation and inflation expectations are responding to this tightening cycle. our decision reflected several considerations. first, inflation in canada remains high and broad - based, reflecting large increases in both goods and services prices. inflation has come down in recent months, but we have yet to see a generalized decline in price pressures. second, and related, the economy is still in excess demand - it's overheated. job vacancies have declined from their peak but remain high, and businesses continue to report widespread labour shortages. third, higher interest rates are beginning to weigh on growth. this is increasingly evident in interest - rate - sensitive parts of the economy, like housing and spending on big - ticket items. but the effects of higher rates will take time to spread through the economy. fourth, there are no easy outs to restoring price stability. we need the economy to slow down to rebalance demand and supply and relieve price pressures. we expect growth will stall in the next few quarters - in other words, growth will be close to zero. but once we get through this slowdown, growth will pick up, our economy will grow solidly, and the benefits of low and predictable inflation will be restored. to put this in numbers, growth in gross domestic product ( gdp ) is projected to decline from about 3a¼ % this year to just under 1 % next year and then rise to 2 % in 2024. and inflation is expected to hover around 7 % in the final quarter of this year, fall to around 3 % by the end of next year and return to the 2 % target by the end of 2024. finally, we are trying to balance the risks of under - and over - tightening. if we don't do

somewhat above the long - term level demanded by the banking sector. 7 some of you may be wondering what that ideal level might be. the answer is not yet set in stone. we know it will be well below our current level of roughly $ 200 billion. our best estimate is somewhere in the range of $ 20 billion to $ 60 billion, or roughly 1 % to 2 % of canadian gross domestic product ( gdp ). by comparison, the us federal reserve ’ s longer - run level of reserves needed has recently been estimated to be roughly 10 % to 13 % of us gdp. 8 this implies that qt will have run its course once our settlement balances have reached this $ 20 billion to $ 60 billion range. at that point, the bank would start buying assets again as part of our regular balance sheet management process. 9 given that a great deal of uncertainty surrounds our estimate for the long - run level of reserves needed, we will be monitoring short - term funding conditions as our settlement balances decline. and based on what we see, we may have to revise our estimate of the level needed for us to implement monetary policy under a floor system. for example, if we were to see persistent upward pressure on the overnight repo rates in the market before settlement balances reached our estimate of the steady - state level, it could very well mean our estimate for the range was too low. as for the question of when qt will end, this will likely occur sometime around the end of 2024 or the first half of 2025. this is based on the maturity structure of our current bond holdings combined with the estimate of what our steady - state holdings will likely be. the timing may shift slightly as the size of other parts of our balance sheet — including government deposits and currency in circulation — changes over time. it ’ s important to remember we are still working to bring aggregate supply and demand back into balance. our main tool for doing this is our policy interest rate, which we have increased forcefully — from 0. 25 % to 4. 50 % in less than a year. but our balance sheet must continue to normalize to remove the support it provides to monetary policy. 6 see bank of canada, “ bank of canada provides operational detail for quantitative tightening and announces that it will continue to implement monetary policy using a floor system, ” ( market notice, april 13, 2022 ). 7 t. gravelle, r. morrow and j. witmer, “ reviewing canada