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

, it was decided to start the provision of liquidity via the first tender operation, which was carried out in the first week, at a fixed rate of 3 %. the governing council also agreed that the interest rate for the marginal lending facility would be set at 4. 50 % and the interest rate for the deposit facility at 2 %. together, these two rates form the so - called “ corridor ” for movements in short - term rates. however, the governing council considered the possibility that market participants may need some time to accustom themselves to the new environment for monetary policy. to this end, it was decided to use a relatively narrow corridor of interest rates for the standing facilities of the eurosystem in the first three weeks of stage three as an automatic device to reduce the maximum range of fluctuations in the overnight interest rate. accordingly, the governing council temporarily introduced an exceptionally narrow corridor of only 50 basis points, with the interest rate for the marginal lending facility at 3. 25 % and the interest rate for the deposit facility at 2. 75 %. this measure will be terminated on 21 january 1999. indeed, this guidance given to the markets proved to be justified, since market developments over the first days showed that the formation of the single european money market would not happen overnight. • • • there were signs that short - term market rates in the different countries were not fully aligned and, in particular, that the spreads between the highest and lowest rates were larger than is normal in an integrated money market. the counterparties of the eurosystem made very high use of the marginal lending facility at 3. 25 % ( eur 27. 5 billion on monday, 4 january ), since this rate was only slightly higher than the prevailing market conditions for overnight borrowing in the euro area. the overnight eonia rate for effective market transactions was 3. 20 % and credit institutions may have preferred to pay a slightly higher rate instead of entering into market transactions with other banks across the border. the counterparties also deposited large amounts overnight with the eurosystem ( eur 9. 2 billion ), as they may not have been willing or able to lend them to other market counterparties. – 3 – in the meantime, this situation has been overcome. the spread between the highest and the lowest rates reported to the ecb by banks of the eonia ( euro overnight index average ) panel has narrowed from 21 basis points on 4 january to below 10 basis points. moreover, the use of the marginal lending