Montreal housing sales hit eight-year low

December 21, 2022


Bank of Canada (BoC) Governor Tiff Macklem

Bank of Canada (BoC) Governor Tiff Macklem defended his December 7, 2022 increase in  Canada’s policy interest rate by 50 basis points—to 4.25 per cent—while also providing an outlook for the future at a December 12 meeting.
"Our top priority is getting inflation back to the two-per-cent target," he said in a speech to the British Columbia Chamber of Commerce at the Fairmont Hotel Vancouver.
"By raising interest rates, we are trying to dampen demand so supply can catch up. That will bring the overheated economy back into balance, and inflation will come down."
Macklem said in a question-and-answer session after his speech that he believes interest rate hikes take between 18 months and two years to filter through the economy. He expects that inflation in Canada will decline to two per cent by late 2024.
BoC's rate increase last week was the seventh in a row announced by Macklem.
In March, when policy interest rates were 0.25 per cent, he made his first hike—a 25-basis-point increase to 0.50 per cent. He then increased Canadian policy interest rates by 50 basis points in each of April and June before opting for a full 100-basis-point hike in July. He then started to reduce the pace of his increases by adding a 75-basis-point hike in September, followed by 50-basis-point hikes in October and on December 7. 
"We have increased interest rates rapidly both because inflation rose quickly and because the economy was overheating," Macklem said. 
"Increasing rates rapidly to rebalance demand and supply, and to keep long-run inflation expectations anchored to our target, is our best chance of restoring price stability without a severe economic contraction."
Macklem sounded confident that he was on the right path. 
"Domestic demand is slowing, and we expect growth in gross domestic product will be close to zero through to the middle of next year as the economy adjusts to higher interest rates," he said.
"This will relieve domestic price pressures, and inflation will come down."

Macklem stressed he will depend on data in the seven weeks this December 7 rate hike and late January 2023 as he considers whether he will raise interest rates again.