Bank of Canada Governor: Canadians Must Wait longer for Interest Rate Decrease.
Bank of Canada Governor Tiff Macklem stated that despite Canada making progress in fighting inflation, Canadians will have to wait for interest rates to decrease. Inflation stood at 2.9 percent in March, above the target of two percent. Macklem cautioned against reducing interest rates too soon, with the Bank of Canada keeping the trend-setting rate at 5 percent.
Concerns over interest rates have risen among Canadians due to their impact on borrowing costs for mortgages and business loans. While Macklem acknowledged the desire for lower rates, he emphasized the need to wait for sustained progress towards stability.
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Factors like fuel and housing costs are keeping inflation above 2 percent. Macklem expects the Consumer Price Index to remain around 3 percent due to rising gasoline prices, easing below 2.5 percent later this year and reaching the 2 percent target by 2025.
High shelter costs continue to drive overall inflation, although positive signs like economic growth are present. The bank projects GDP growth of 1.5 percent in 2024 and around 2 percent in the following years without predicting a recession.
Senators inquired about the impact of high immigration rates, with Macklem stating that immigration affects housing costs significantly, leading to inflation in rent prices. The discussion also touched on declining productivity compared to the United States.
Bank of Canada has shifted focus to productivity as a means of maintaining stability in the face of challenges like an aging population and climate shocks. Macklem highlighted the importance of increased productivity for competitiveness and improved standard of living for Canadians.
