Press Conference on Interest Rate Announcement by the Bank of Canada

hello good morning everyone my name is Paul boder I&#39;m the director of media relations here at the Bank of Canada and I&#39;ll be moderating this press conference about today&#39;s interest rate announcement after his opening statement Governor mum and Senior Deputy Governor Carolyn Rogers will be happy to take your questions and so with that I will turn it over to Governor mam for his opening remarks aula parol thank you good morning senior Deputy Governor and I are very pleased to join you for this morning&#39;s policy announcement the governing Council decided monetary policy no longer needs to be as restrictive and lowered the policy rate by 25 basis points to four and 3/4 per. we&#39;ve come a long way in the fight against inflation and our confidence that inflation will continue to move closer to the 2% target has increased in recent months the consider the considerable progress we&#39;ve made restoring price stability is welcome news for Canadians since our monetary policy report in April underlying inflation has continued to ease and economic growth has resumed with the economy and excess Supply there is room for growth even as inflation continues to ease rest continue AB let me provide a little more detail around these Dynamics after stalling in the second half of last year economic growth picked up in the first quarter of this year at 1.7% growth was lower than projected in the April report but consumption growth was solid at about 3% and business investment and housing activity also increased in the labor market businesses are continuing to hire workers employment has been growing but at a slower Pace than the working age population this has allowed the supply of workers to catch up with job vacancies elevated wage pressures look to be moderating gradually inflation remains above the 2% Target and shelter price inflation is high but total CPI inflation has declined consistently over the course of this year and indicators of underlying inflation increasingly point to sustained easing I&#39;ll highlight four indicators in particular CPI inflation has eased from 3.4% in December to 2.7% in April our preferred measures of core inflation have come down from about 3 and 1 half% last December to about 2 and 3/4% in April the three run rates of core inflation slowed from about 35% December to under 2% in March and April and the proportion of CPI components increasing faster than 3% is now close to its historical average suggesting price increases are no longer unusually broad-based this all means restrictive monetary policy is working to relieve price pressures and with further and more sustained evidence underlying inflation is easing monetary policy no longer needs to be as restrictive in other words it&#39;s appropriate to lower our policy interest rate Direct if inflation continues to ease and our confidence that inflation is head sustainably to the 2% Target continues to increase it is reasonable to expect further Cuts in our policy interest rate but we are taking our interest rate decisions one meeting at a time we don&#39;t want monetary policy to be more restrictive than it needs to be to get inflation back to Target but if we lower our policy rate too quickly we could jeopardize the hard one progress we&#39;ve made further progress in bringing inflation down is likely to be uneven and risks remain inflation could be higher if Global tensions escalate if house prices in Canada rise faster than expected or if wage growth remains High relative to productivity in assessing where inflation is headed we will continue to closely watch the evolution of core inflation we remain focused on the balance between demand and Supply in the economy inflation expectations wage growth and corporate pricing Behavior here with that summary the senior Deputy Governor and I will be very pleased take your questions thank you okay thank you Governor um let&#39;s just quickly go over the ground rules um we&#39;re going to start here in in the room in Ottawa and then go to the phones I&#39;ve got uh quite a long list so let&#39;s uh limit it to uh one question please um per uh Outlet um if I forget to do so please state your name and affiliation for those who are new um here in the room please press the green button on the little box in front of you to activate your microphone press it again to shut it off once you&#39;ve done asking your question with that let&#39;s start here in the room I&#39;m gonna start up here front with Jordan goling from CTV please govern uh you previously said that you won&#39;t be cutting rates at the rate that you raise them does this mean Canadians should not expect a cut next month or do you plan to cut again in July uh look I think the message was pretty clear um we&#39;re going to be taking our interest rate decisions one meeting at a time uh if the economy continues to evolve uh broadly as we had expected if we continue to see inflation pressures easing it is reasonable to expect that there will be further Cuts in interest rates but the timing of those cuts or of any further cuts are going to depend on incoming data and are assessment of what those data mean for the future path of inflation look we we are determined to get inflation back the 2% Target at 2.7% we&#39;re still above Target uh there are a number of risks that we&#39;re watching closely um so you know the work&#39;s not done um we&#39;re going to be keep we&#39;re going to be seeing how things evolve and taking our decisions one meeting at a time let&#39;s go now to promit Muki from Reuters please thanks Paul um hi Mr Governor I would like to again take it forward that question considering that this so far the data has shown that the inflation has been easing and the it&#39;s going in the trajectory that you wanted if it continues in that way and you will have more numbers in terms of GDP and job by July 24th if that all continues the way you want it do we see a rate cut in June July um I I&#39;ll get to the going ahead but let&#39;s let&#39;s just enjoy the moment for a bit let me just say a couple of key points about the rid decision today and then I will come back to uh where we could be headed but look a couple key messages today we&#39;ve come a long way in the fight against inflation headline inflation has come down our measures of underlying inflation have been easing and growth has resumed uh again in the Canadian economy second key point is the economies evolved broadly as we has the the economy has evolved broadly as we&#39;ve expected in recent months and that has increased our confidence that inflation will continue to move gradually back closer to the 2% Target so we decided at this meeting that monetary policy doesn&#39;t need to be as restrictive as it has been uh and we lowered the policy rate by a quarter point I know this is welcome news to many Canadians I also know everybody wants to know okay where are we headed um that is going to depend how things evolve uh what I can say is that if the economy continues to evolve broadly as we have expected as we expect and we continue to see a broad easing in inflationary pressures it is reasonable to expect further Cuts in our policy rate but and I want to stress this the timing of any further Cuts is going to depend on incoming data uh it it in particular is going to depend on what those incoming data tell us about the most likely future path for inflation we are determined to get inflation back to the 2% Target um we know it we know we know there can be some bumps along the way uh there are a number of risks which I highlighted in the opening statement which we&#39;re watching closely so what does all that mean it means we&#39;re going to be taking it one meeting at a time Paul Vieira from The Wall Street Journal please in testimony to lawmakers last month you talked about um you talked about how the if there&#39;s going to be rate Cuts they would be done gradually and you talked about that there are limits to Fed policy Divergence uh why is the word gradually or cautiously uh in terms of describing further Cuts why is that absent from the statement um I think I think we&#39;re being pretty clear we&#39;re going to take it one meeting at a time um when I was asked about the pace of cuts I think the question was something along the lines you know you raised rates uh very rapidly um what what&#39;s the pace of cutting look like um our own for when we raise rates rapidly we&#39;re in a situation where inflation had moved up very rapidly and we needed to raise rates rapidly to control inflation and bring it down the situation now is is quite different uh and our own forecast has inflation easing gradually back towards the 2% Target so what that suggests is that you know the future path of interest rates um while it&#39;s reasonable to expect further Cuts if inflation continues to ease given that it&#39;s likely to ease gradually the path for interest rates likely to be gradual let&#39;s go to Kevin carmichel from the logic please um Governor uh you the senior Deputy Governor others at the Bank of Canada been obviously doing a lot of work around the productivity crisis uh you seem to surround the lack of investment as one of the big issues behind that that problem to what extent has the higher for longer interest rate environment impeded investment in your view and how will that factor into your decision on how quickly to bring down rates going forward um well Kevin as you know the productivity problem we&#39;ve had here um is longstanding has uh has multiple factors it&#39;ll take said multiple uh factors contributing to it it&#39;ll take more than one thing to solve it um interest rates certainly right now interest rates and inflation are both uncertainty factors that affect business investment so um you know as we get inflation back to Target that&#39;ll remove that uncertainty um interest rates uh you know as as the governor said it&#39;s welcome news um we&#39;ve been able to lower interest rates today we&#39;ll take the next decisions as they come um and see how that factors into investment okay let&#39;s come down here to nud alal from Canadian press please hi Governor um building on Paul&#39;s question about uh the limit on how much Canada can diverge from other countries in terms of interest rates can you talk a little bit about what that limit looks like and what it means for Canada right now to be diverging from many of its peer countries uh so in Canada we have our own currency we have a flexible exchange rate right and what that means is that we can gear monetary policy to the needs of the Canadian economy uh so we don&#39;t need to move lock and step with the Federal Reserve um obviously what happens in the United States has a big impact on our economy our we you know the US is the biggest source of Canadian Imports it&#39;s it&#39;s a major source of sorry it&#39;s it&#39;s a biggest source of Canadian exports we also import a lot from the United States our financial markets are very integrated so what happens in the United States um certainly has an impact on Canada and we take that into account when we um develop our own forecast our own Outlook we take that into account uh when we take our monetary policy decisions but we we have our own currency we have a flexible exchange rate so that means that we can take uh decisions that are geared to what the Canadian economy needs and our judgment today is that the Canadian economy doesn&#39;t need monetary policy at as restrictive as it has been and so we cut the policy rate by 25 basis points there are limits to how how far we can diverge from the United States but we&#39;re we&#39;re not close to those limits and uh I expect that um you know we will we will you know we will continue to be able to get inflation back to Target uh and run monetary policy in Canada within [Music] those okay next on my list I have Alicia Secura from Yahoo finance please go ahead uh thank you governor for taking our questions um can you take us through the bank&#39;s consideration in weighing this cut versus the potential risk it may have on the housing market and in accelerating shelter prices uh when we published our April monetary policy report um we were expecting some um increase a modest increase in house prices that that was ahead of this decision um we have we did then and we and we continue to point out um housing as a risk um to our inflation forecast so it&#39;s something we&#39;re going to continue to watch um ultimately uh what we target is inflation we don&#39;t Target any particular measure in the housing market or an interest rate um but it it you know it&#39;s clear there is some pent up um demand in the housing market we&#39;ll see how it goes okay I&#39;m going to come down here now to McKenzie Gray from Global please uh in the same Vein on housing uh 76% of Canadian mortgages are going to be up by 2026 how much does that play a decision uh when you&#39;re thinking about cutting or or keeping rates where they are and how concerned are you that broadly for an impact on the Canadian economy yeah I mean we we&#39;re talking a lot about the data that we look at when we make our decisions uh we always look at how our decisions are going to affect Canadians and certainly the mortgage Market is a big part of that mortgages are one of the biggest uh in sensitivities that Canadians have so we&#39;re uh we&#39;re looking at the same data the 76% is a number that OSI put out um that&#39;s something we&#39;ve been watching all along we did a deep dive on this just a few weeks ago when we put out our financial stability report and you&#39;ll remember in that report we also pointed out uh the impact um of the impact on renters so so you know we know mortgage uh people holding mortgages um are feeling the squeeze we know there is uh concern about uh higher interest rates when they renew their mortgage um but the the effect of the the credit stress we see is also showing up in in renters too and you know that&#39;s that&#39;s really um inflation as well as as interest rates showing up so um what we can do to help that situation is get inflation back to Target we know Canadians with mortgages that are renewing would will welcome this interest rate change they would like to see further uh changes in further reductions in interest rate as the governor said it&#39;s reasonable to expect that if the economy continues to evolve as we expected to if we continue to see an easing in in core and headline inflation um but the bottom L line is we uh we also need to get inflation back to Target we&#39;re determined to do that okay Randy thanong KN from Bloomberg please hi Governor How concerned are you that slower population growth will change your assumptions for potential growth and how does that affect your thinking um so uh we are expecting population growth to slow it has been exceptionally strong um the government has announced a number of measures particularly to slow the U number of non-permanent residents coming into Canada um we we&#39;ve built that that into our our our April forecast that that announcement came out before the April forecast so we have built in that uh path for population growth um you know population growth affects both demand and Supply in the economy obviously if you&#39;ve got more people coming into the economy you&#39;ve got more workers they&#39;re adding to the labor force that that has eased uh the tightness we&#39;ve seen in the labor market uh those those new uh newcomers to Canada though they also need to rent apartments they need they need housing that has put a lot of pressure on the housing market so there are both demand and and Supply effects as population grows slows that should and and if if if uh the supply of housing can increase as demand comes down that should help relieve some of the pressures we&#39;ve seen in the labor market in the housing market uh and with the labor market coming into better balance um you we you know we&#39;ve seen businesses are hiring they&#39;re still hiring but they&#39;re hiring as slowed and it&#39;s actually below population growth now which has helped rebalance the labor market but you know the labor market is reasonably balanced so um you know we we will be watching population growth um carefully and when we get to our July for uh we will update uh our assumptions about population growth and feed that into our projection but you know given that it affects both demand and Supply it&#39;s not it&#39;s not going to probably swing the the forecast dramatically okay next on my list I have mark renle from the Globe and Mail please go ahead Mark thanks for uh taking the question um I&#39;m wondering if you can talk a little bit about the trajectory you see for the economy over the next uh quarters next year or so obviously as was mentioned before we have a lot of mortgage resets quite sizable mortgage resets and payment shocks coming up um are we through the worst of it is there still a possibility for a recession uh going forward um well as you know we don&#39;t we don&#39;t have an updated forecast at this um this uh policy decision um we run our forecasts four times a year with the national accounts uh we will have a new forecast uh in in July um but uh we did receive obviously the national accounts for the first quarter uh recently and so growth in the first quarter at 1.7% uh was um weaker than we we&#39;d forecast uh in our April monetary policy report at the time we forecast 2.8% um I guess what I would stress is that if you look at last year certainly the second half of last last year the economy was really quite weak um GDP growth roughly zero through the second half on per capita terms uh consumption uh was actually uh declining in other words households were reducing you know individual households were reducing their spending um you know in the fourth quarter and in the first quarter consumption growth was about 3% it&#39;s broadly in line with uh population growth so what that means is that um you know per capita basis consumption was roughly flat so you&#39;re seeing some strengthening uh in uh consumption growth in the first quarter you also saw investment uh picked up a bit housing market um has not been particularly strong but uh it was it was positive so you know grow growth has resumed in the first quarter uh we&#39;ll certainly be looking at um our growth trajectory going forward but you know to get back to your soft Landing question yes so far it is looking uh like uh a soft Landing uh you plane hasn&#39;t been landed yet so we&#39;re not we&#39;re not cheering yet but you know I would say the runway&#39;s in sight um but you know we we still need to land this okay Greg Quinn from market news you&#39;re next please good morning uh I want to ask about growth in the other sense because the statement mentions the idea that there&#39;s room for growth in the economy even with an inflation slows I mean that&#39;s a nice scenario a bit how big is that crawl space how do we have a substantial amount of room to grow from here without sparking new inflation pressure um well you know to go back to the previous question so with growth roughly zero in the second half of last year um excess Supply opened up in the economy and that&#39;s actually been key to relieving price pressures has been an important reason why we&#39;re seeing inflation and underlying inflation uh come down uh with some excess Supply in the economy what that means is there&#39;s room for the economy to grow in fact there&#39;s even room for economy to grow faster than potential for a period even as there are still downward there is still downward uh pressure on inflation so uh you know we will be revising our forecast in July I don&#39;t have a new for for you today but um I think what we&#39;re seeing in the first quarter our growth has resumed I think we expect um over the course of the year we expect household spending to gradually strengthen um and our message really is you know given that the economy is an excess Supply there is room for the economy to grow even as inflation keeps coming uh back down closer to the Target and you know so to get back to our decision today you know why did we conclude that monetary policy doesn&#39;t be need to be as restrictive well an important reason is just looking at inflation itself core inflation our various measures of underlying inflation you know since the start of the year they&#39;ve all been moving in the right direction uh the fact that the economy is an excess Supply though is another element that is giving us confidence that you know even as the economy uh even as growth presumes uh inflation can keep moving back towards the 2% Target okay our final question in the in the room here goes to daichi Mishima from Nik new service uh this is D Mishima with theik uh thank you for taking our questions uh govern M while you decided to cut rates uh you also decided to continue quantitative uh tightening it seems to me that you&#39;re stepping on uh the gas and brake pedals at the same time so how do you determine when to stop QT and what are the conditions for that thank you um well I don&#39;t see it quite the way you see it um the way we see it is um we&#39;re normalizing our balance sheet um and as long as the let me put it we we we&#39;ve gone through this before but I&#39;ll go through it again you yes we we reduced our policy rate today by 25 basis points but at the policy rate of four and 3/4 monetary policy remains restrictive and in fact with inflation at 2.7% underlying inflation roughly 2 and 3/4 perc we still need restrictive monetary policy there is still some work to do to get inflation back to Target it doesn&#39;t need to be as restrictive um but we still need restrictive monetary policy and in that sense continuing QT continuing to normalize our balance sheet makes sense if we were to lower interest rates so much that we&#39;re that we&#39;re actually Pro trying to provide stimulus to the economy um you know that would be a different situation and in that situation we probably would uh stop QT because and then they would be working across purposes but that that&#39;s not the situation we&#39;re in now with respect to the the the path for um our balance sheet going forward um you know we have been letting uh maturing bonds roll off our balance sheet our balance sheet has been steadily uh shrinking um we will get to a point where uh our balance sheet is normalized and at that point we will resume our normal operations and nqt R uh resume normal operations and begin buying uh government debt once again um you know as Tony Grell has outlined in certainly in speeches that&#39;ll probably happen sometime uh next year um and we will we will provide you know as we get closer to that point uh there is some uncertainty exactly where that Point&#39;s going to be as we get start to get closer to that as we as we um you know hone in on on what the steady state level of settlement balances uh needs to be we will provide uh markets update on on on that okay that&#39;s it for the room we&#39;re going to go to those reporters who have joined us remotely I&#39;m going to just remind people on the line please come off mute only to ask your question then go back on mute as soon as you have finished so everyone can hear the response I&#39;m going to start with John Erman from Bloomberg BNN John please go ahead thanks so much uh Governor I just wanted to see if you could shed some light on how you think about the level of our dollar the currency the relationship with the US currency and this idea of us importing inflation if we see more weakness than the Looney and also since you haven&#39;t been asked and the senior Deputy Governor Haven been asked about your PIN so far what happens to the Canadian economy if the edin and Oilers were to Stanley Cup uh well let&#39;s hope a Canadian team let&#39;s hope the Oilers win the Stanley Cup go Oilers um the Canadian dollar I mean you know as I said previously we have a flexible exchange rate and one of the ways monetary policy works is it works through the flexible exchange rate um and it&#39;s the flexible exchange rate that gives us the ability AB ility to set interest rates in Canada uh that are geared to the needs of the Canadian economy so um you know we don&#39;t have a target for the exchange rate we have a target for uh inflation um we believe in flexible exchange rates um and I think the you know by being clear about uh our forecast being clear about uh what&#39;s on our mind uh you know by doing these press conferences by publishing the monetary policy report by providing a summary of deliberations I think markets know have a very good idea what&#39;s on our mind and you know that that&#39;s going to be reflected in the expected future interest rates that&#39;s going to be uh expected in in the exchange rate that&#39;s monetary policy working okay next on the list I&#39;ve got uh Max sat from mace news max please go ahead thank you Paul Governor um leading up to today&#39;s rate cut decision was there any discussion among the governing council members as to how this could affect the value of the Canadian dollar and import costs or how the policy difference with other major central banks could affect the real economy um yeah we discussed all those things of course we did um as I said um you know with with respect to the exchange rate um yeah it&#39;s one of the ways monetary policy Works um and yes you know we&#39;re you know we have been assessing the impact of higher interest rates on Canadian households on Canadian businesses and you we&#39;ve you know we know it&#39;s been difficult we know it&#39;s squeezed households and businesses uh that has relieved price pressures in Canada and we came to the conclusion of this meeting that monetary policy doesn&#39;t need to be uh as restrictive as it has been so we lowered the policy right so yes those are the things that we&#39;re we&#39;re looking at so maybe I&#39;ll add I mean if you think about this past runup and inflation um in the early days a lot of what was going on was was Global so there was uh commodity prices there was supply chain impacts and so central banks across the globe were acting sort of in a in concert we were we were doing the same thing CU we were seeing the same things we were dealing with the same thing as inflations come down what is remaining for most of us is really more about what&#39;s in our domestic economies and so it&#39;s logical that we&#39;re going to diverge a bit because what we&#39;re doing is responding to what&#39;s what&#39;s in our what&#39;s in our our domestic economy and that&#39;s different um and it&#39;s different for a variety of reasons that the governor&#39;s mentioned it&#39;s different because uh monetary policy is working a bit differently in each economy um there&#39;s different factors so so although we were we were quite coordinated on the way up and that was really helpful because a big part of inflation was Global um you&#39;re going to see some Divergence on the way down and that that makes sense okay next I&#39;ve got Rob M CL from mortgage logic news go ahead Rob good morning uh I&#39;m wondering how Canadians should view the bank&#39;s estimated neutral rate now that we&#39;ve pivoted to an easing cycle so you other words if inflation evolves as the bank Canada projects and drops back to 2% is it reasonable to expect the overnight rate should get close to the bank&#39;s estimated neutral rate uh okay well the first thing I need to tell you is I don&#39;t think Canadians should spend a lot of time thinking about the neutral rate um the neutral rate is it&#39;s it&#39;s a theoretical concept it&#39;s something we need in our models I mean the neutral rate is you know where the policy rate would settle in the long run when the output Gap is closed inflation is back to Target and there are no new shocks in other words we&#39;ll never get there there&#39;s always going to be new shocks there&#39;s always going to be new events um you know the interest rate is the thing that we adjust to get inflation back to Target and to keep it there um now we do need you know we do need an estimate of the neutral rate we can&#39;t observe the neutral rate obviously directly we do need to put an estimate of the neutral rate in our models uh and in the spirit of transparency uh we we publish our estimate of the neutral rate we we updated our estimate uh last U at our last monetary policy report in in April and we increased the neutral rate uh estimate by 25 basis points or we have a range the midpoint of the range is is 275 um look I I know you know so you know talk of the terminal rate the neutral rate I I really think um you&#39;re getting ahead of yourselves uh if you want to know where we&#39;re headed we&#39;re headed to 2% inflation and the interest rates are going to be what they need to be to get us there and keep us there I mean what what you know as we&#39;ve said looking the near term if the economy continues to evolve broadly as we expect if we continue to see inflationary pressures ease it is reasonable to expect um further Cuts in our policy rate but the timing is is is very much going to depend on incoming data and our assessment of what that means for the path for inflation uh you know when you look out beyond that I mean we don&#39;t have a crystal ball um but you know what we what we have said uh a few times in the past is that if you look at where interest rates were after the global financial crisis and before covid hit uh it was a period of unusually low interest rates when you when you look at that today a number of the forces that resulted in those very low interest rates look to be unwinding so you know we don&#39;t have a crystal ball but it it does seem likely that interest rates while we do expect they&#39;re going to come down they&#39;re probably not going to come down as low as they were preo or or to put it another way um it would be prudent for for households and businesses and and governments not to plan on interest rates getting back to preco levels okay and our final question goes to Barbara sheer from the financial post hello uh thanks for taking the call uh or the question uh I wanted to ask uh if you modeled how far you can diverge from the FED uh your financial stability uh report talked a lot about the interconnectedness of the financial market so you&#39;ve obviously looked at that um so how how far can you diverge before it starts to flow into problems with the currency and markets like the bond market that kind of thing um well I think you can you you can you can look over history and see uh how much we have diverged at various times in the past and give you some guideline uh you know as I said we&#39;re not we&#39;re not close to that I think uh I think the market you know as as a senior Deputy Governor just indicated um conditions are somewhat different in Canada the United States inflation has been easing consistently in Canada it&#39;s been stickier in the United States US economy has been stronger um conditions are different I think markets uh are seeing that um and you know that&#39;s been built into uh our rate expectations it&#39;s certainly something that factored into our decision and I think you know markets will continue to uh absorb the incoming information so I don&#39;t think we&#39;re close to that limit you know I don&#39;t think it&#39;s like there&#39;s no sort of bright line um and you can see from history there have been periods of uh you know considerable Divergence and with that that will conclude today&#39;s press conference uh thank you Governor senior Deputy Governor and thank you everyone for joining us we&#39;ll see you in a few weeks for the NPR thanks very much thank you

hello good morning everyone my name is Paul boder I&amp;#39;m the director of media relations here at the Bank of Canada and I&amp;#39;ll be moderating this press conference about today&amp;#39;s interest rate announcement after his opening statement Governor mum and Senior Deputy Governor Carolyn Rogers will be happy to take your questions and so with that I will turn it over to Governor mam for his opening remarks aula parol thank you good morning senior Deputy Governor and I are very pleased to join you for this morning&amp;#39;s policy announcement the governing Council decided monetary policy no longer needs to be as restrictive and lowered the policy rate by 25 basis points to four and 3/4 per. we&amp;#39;ve come a long way in the fight against inflation and our confidence that inflation will continue to move closer to the 2% target has increased in recent months the consider the considerable progress we&amp;#39;ve made restoring price stability is welcome news for Canadians since our monetary policy report in April underlying inflation has continued to ease and economic growth has resumed with the economy and excess Supply there is room for growth even as inflation continues to ease rest continue AB let me provide a little more detail around these Dynamics after stalling in the second half of last year economic growth picked up in the first quarter of this year at 1.7% growth was lower than projected in the April report but consumption growth was solid at about 3% and business investment and housing activity also increased in the labor market businesses are continuing to hire workers employment has been growing but at a slower Pace than the working age population this has allowed the supply of workers to catch up with job vacancies elevated wage pressures look to be moderating gradually inflation remains above the 2% Target and shelter price inflation is high but total CPI inflation has declined consistently over the course of this year and indicators of underlying inflation increasingly point to sustained easing I&amp;#39;ll highlight four indicators in particular CPI inflation has eased from 3.4% in December to 2.7% in April our preferred measures of core inflation have come down from about 3 and 1 half% last December to about 2 and 3/4% in April the three run rates of core inflation slowed from about 35% December to under 2% in March and April and the proportion of CPI components increasing faster than 3% is now close to its historical average suggesting price increases are no longer unusually broad-based this all means restrictive monetary policy is working to relieve price pressures and with further and more sustained evidence underlying inflation is easing monetary policy no longer needs to be as restrictive in other words it&amp;#39;s appropriate to lower our policy interest rate Direct if inflation continues to ease and our confidence that inflation is head sustainably to the 2% Target continues to increase it is reasonable to expect further Cuts in our policy interest rate but we are taking our interest rate decisions one meeting at a time we don&amp;#39;t want monetary policy to be more restrictive than it needs to be to get inflation back to Target but if we lower our policy rate too quickly we could jeopardize the hard one progress we&amp;#39;ve made further progress in bringing inflation down is likely to be uneven and risks remain inflation could be higher if Global tensions escalate if house prices in Canada rise faster than expected or if wage growth remains High relative to productivity in assessing where inflation is headed we will continue to closely watch the evolution of core inflation we remain focused on the balance between demand and Supply in the economy inflation expectations wage growth and corporate pricing Behavior here with that summary the senior Deputy Governor and I will be very pleased take your questions thank you okay thank you Governor um let&amp;#39;s just quickly go over the ground rules um we&amp;#39;re going to start here in in the room in Ottawa and then go to the phones I&amp;#39;ve got uh quite a long list so let&amp;#39;s uh limit it to uh one question please um per uh Outlet um if I forget to do so please state your name and affiliation for those who are new um here in the room please press the green button on the little box in front of you to activate your microphone press it again to shut it off once you&amp;#39;ve done asking your question with that let&amp;#39;s start here in the room I&amp;#39;m gonna start up here front with Jordan goling from CTV please govern uh you previously said that you won&amp;#39;t be cutting rates at the rate that you raise them does this mean Canadians should not expect a cut next month or do you plan to cut again in July uh look I think the message was pretty clear um we&amp;#39;re going to be taking our interest rate decisions one meeting at a time uh if the economy continues to evolve uh broadly as we had expected if we continue to see inflation pressures easing it is reasonable to expect that there will be further Cuts in interest rates but the timing of those cuts or of any further cuts are going to depend on incoming data and are assessment of what those data mean for the future path of inflation look we we are determined to get inflation back the 2% Target at 2.7% we&amp;#39;re still above Target uh there are a number of risks that we&amp;#39;re watching closely um so you know the work&amp;#39;s not done um we&amp;#39;re going to be keep we&amp;#39;re going to be seeing how things evolve and taking our decisions one meeting at a time let&amp;#39;s go now to promit Muki from Reuters please thanks Paul um hi Mr Governor I would like to again take it forward that question considering that this so far the data has shown that the inflation has been easing and the it&amp;#39;s going in the trajectory that you wanted if it continues in that way and you will have more numbers in terms of GDP and job by July 24th if that all continues the way you want it do we see a rate cut in June July um I I&amp;#39;ll get to the going ahead but let&amp;#39;s let&amp;#39;s just enjoy the moment for a bit let me just say a couple of key points about the rid decision today and then I will come back to uh where we could be headed but look a couple key messages today we&amp;#39;ve come a long way in the fight against inflation headline inflation has come down our measures of underlying inflation have been easing and growth has resumed uh again in the Canadian economy second key point is the economies evolved broadly as we has the the economy has evolved broadly as we&amp;#39;ve expected in recent months and that has increased our confidence that inflation will continue to move gradually back closer to the 2% Target so we decided at this meeting that monetary policy doesn&amp;#39;t need to be as restrictive as it has been uh and we lowered the policy rate by a quarter point I know this is welcome news to many Canadians I also know everybody wants to know okay where are we headed um that is going to depend how things evolve uh what I can say is that if the economy continues to evolve broadly as we have expected as we expect and we continue to see a broad easing in inflationary pressures it is reasonable to expect further Cuts in our policy rate but and I want to stress this the timing of any further Cuts is going to depend on incoming data uh it it in particular is going to depend on what those incoming data tell us about the most likely future path for inflation we are determined to get inflation back to the 2% Target um we know it we know we know there can be some bumps along the way uh there are a number of risks which I highlighted in the opening statement which we&amp;#39;re watching closely so what does all that mean it means we&amp;#39;re going to be taking it one meeting at a time Paul Vieira from The Wall Street Journal please in testimony to lawmakers last month you talked about um you talked about how the if there&amp;#39;s going to be rate Cuts they would be done gradually and you talked about that there are limits to Fed policy Divergence uh why is the word gradually or cautiously uh in terms of describing further Cuts why is that absent from the statement um I think I think we&amp;#39;re being pretty clear we&amp;#39;re going to take it one meeting at a time um when I was asked about the pace of cuts I think the question was something along the lines you know you raised rates uh very rapidly um what what&amp;#39;s the pace of cutting look like um our own for when we raise rates rapidly we&amp;#39;re in a situation where inflation had moved up very rapidly and we needed to raise rates rapidly to control inflation and bring it down the situation now is is quite different uh and our own forecast has inflation easing gradually back towards the 2% Target so what that suggests is that you know the future path of interest rates um while it&amp;#39;s reasonable to expect further Cuts if inflation continues to ease given that it&amp;#39;s likely to ease gradually the path for interest rates likely to be gradual let&amp;#39;s go to Kevin carmichel from the logic please um Governor uh you the senior Deputy Governor others at the Bank of Canada been obviously doing a lot of work around the productivity crisis uh you seem to surround the lack of investment as one of the big issues behind that that problem to what extent has the higher for longer interest rate environment impeded investment in your view and how will that factor into your decision on how quickly to bring down rates going forward um well Kevin as you know the productivity problem we&amp;#39;ve had here um is longstanding has uh has multiple factors it&amp;#39;ll take said multiple uh factors contributing to it it&amp;#39;ll take more than one thing to solve it um interest rates certainly right now interest rates and inflation are both uncertainty factors that affect business investment so um you know as we get inflation back to Target that&amp;#39;ll remove that uncertainty um interest rates uh you know as as the governor said it&amp;#39;s welcome news um we&amp;#39;ve been able to lower interest rates today we&amp;#39;ll take the next decisions as they come um and see how that factors into investment okay let&amp;#39;s come down here to nud alal from Canadian press please hi Governor um building on Paul&amp;#39;s question about uh the limit on how much Canada can diverge from other countries in terms of interest rates can you talk a little bit about what that limit looks like and what it means for Canada right now to be diverging from many of its peer countries uh so in Canada we have our own currency we have a flexible exchange rate right and what that means is that we can gear monetary policy to the needs of the Canadian economy uh so we don&amp;#39;t need to move lock and step with the Federal Reserve um obviously what happens in the United States has a big impact on our economy our we you know the US is the biggest source of Canadian Imports it&amp;#39;s it&amp;#39;s a major source of sorry it&amp;#39;s it&amp;#39;s a biggest source of Canadian exports we also import a lot from the United States our financial markets are very integrated so what happens in the United States um certainly has an impact on Canada and we take that into account when we um develop our own forecast our own Outlook we take that into account uh when we take our monetary policy decisions but we we have our own currency we have a flexible exchange rate so that means that we can take uh decisions that are geared to what the Canadian economy needs and our judgment today is that the Canadian economy doesn&amp;#39;t need monetary policy at as restrictive as it has been and so we cut the policy rate by 25 basis points there are limits to how how far we can diverge from the United States but we&amp;#39;re we&amp;#39;re not close to those limits and uh I expect that um you know we will we will you know we will continue to be able to get inflation back to Target uh and run monetary policy in Canada within [Music] those okay next on my list I have Alicia Secura from Yahoo finance please go ahead uh thank you governor for taking our questions um can you take us through the bank&amp;#39;s consideration in weighing this cut versus the potential risk it may have on the housing market and in accelerating shelter prices uh when we published our April monetary policy report um we were expecting some um increase a modest increase in house prices that that was ahead of this decision um we have we did then and we and we continue to point out um housing as a risk um to our inflation forecast so it&amp;#39;s something we&amp;#39;re going to continue to watch um ultimately uh what we target is inflation we don&amp;#39;t Target any particular measure in the housing market or an interest rate um but it it you know it&amp;#39;s clear there is some pent up um demand in the housing market we&amp;#39;ll see how it goes okay I&amp;#39;m going to come down here now to McKenzie Gray from Global please uh in the same Vein on housing uh 76% of Canadian mortgages are going to be up by 2026 how much does that play a decision uh when you&amp;#39;re thinking about cutting or or keeping rates where they are and how concerned are you that broadly for an impact on the Canadian economy yeah I mean we we&amp;#39;re talking a lot about the data that we look at when we make our decisions uh we always look at how our decisions are going to affect Canadians and certainly the mortgage Market is a big part of that mortgages are one of the biggest uh in sensitivities that Canadians have so we&amp;#39;re uh we&amp;#39;re looking at the same data the 76% is a number that OSI put out um that&amp;#39;s something we&amp;#39;ve been watching all along we did a deep dive on this just a few weeks ago when we put out our financial stability report and you&amp;#39;ll remember in that report we also pointed out uh the impact um of the impact on renters so so you know we know mortgage uh people holding mortgages um are feeling the squeeze we know there is uh concern about uh higher interest rates when they renew their mortgage um but the the effect of the the credit stress we see is also showing up in in renters too and you know that&amp;#39;s that&amp;#39;s really um inflation as well as as interest rates showing up so um what we can do to help that situation is get inflation back to Target we know Canadians with mortgages that are renewing would will welcome this interest rate change they would like to see further uh changes in further reductions in interest rate as the governor said it&amp;#39;s reasonable to expect that if the economy continues to evolve as we expected to if we continue to see an easing in in core and headline inflation um but the bottom L line is we uh we also need to get inflation back to Target we&amp;#39;re determined to do that okay Randy thanong KN from Bloomberg please hi Governor How concerned are you that slower population growth will change your assumptions for potential growth and how does that affect your thinking um so uh we are expecting population growth to slow it has been exceptionally strong um the government has announced a number of measures particularly to slow the U number of non-permanent residents coming into Canada um we we&amp;#39;ve built that that into our our our April forecast that that announcement came out before the April forecast so we have built in that uh path for population growth um you know population growth affects both demand and Supply in the economy obviously if you&amp;#39;ve got more people coming into the economy you&amp;#39;ve got more workers they&amp;#39;re adding to the labor force that that has eased uh the tightness we&amp;#39;ve seen in the labor market uh those those new uh newcomers to Canada though they also need to rent apartments they need they need housing that has put a lot of pressure on the housing market so there are both demand and and Supply effects as population grows slows that should and and if if if uh the supply of housing can increase as demand comes down that should help relieve some of the pressures we&amp;#39;ve seen in the labor market in the housing market uh and with the labor market coming into better balance um you we you know we&amp;#39;ve seen businesses are hiring they&amp;#39;re still hiring but they&amp;#39;re hiring as slowed and it&amp;#39;s actually below population growth now which has helped rebalance the labor market but you know the labor market is reasonably balanced so um you know we we will be watching population growth um carefully and when we get to our July for uh we will update uh our assumptions about population growth and feed that into our projection but you know given that it affects both demand and Supply it&amp;#39;s not it&amp;#39;s not going to probably swing the the forecast dramatically okay next on my list I have mark renle from the Globe and Mail please go ahead Mark thanks for uh taking the question um I&amp;#39;m wondering if you can talk a little bit about the trajectory you see for the economy over the next uh quarters next year or so obviously as was mentioned before we have a lot of mortgage resets quite sizable mortgage resets and payment shocks coming up um are we through the worst of it is there still a possibility for a recession uh going forward um well as you know we don&amp;#39;t we don&amp;#39;t have an updated forecast at this um this uh policy decision um we run our forecasts four times a year with the national accounts uh we will have a new forecast uh in in July um but uh we did receive obviously the national accounts for the first quarter uh recently and so growth in the first quarter at 1.7% uh was um weaker than we we&amp;#39;d forecast uh in our April monetary policy report at the time we forecast 2.8% um I guess what I would stress is that if you look at last year certainly the second half of last last year the economy was really quite weak um GDP growth roughly zero through the second half on per capita terms uh consumption uh was actually uh declining in other words households were reducing you know individual households were reducing their spending um you know in the fourth quarter and in the first quarter consumption growth was about 3% it&amp;#39;s broadly in line with uh population growth so what that means is that um you know per capita basis consumption was roughly flat so you&amp;#39;re seeing some strengthening uh in uh consumption growth in the first quarter you also saw investment uh picked up a bit housing market um has not been particularly strong but uh it was it was positive so you know grow growth has resumed in the first quarter uh we&amp;#39;ll certainly be looking at um our growth trajectory going forward but you know to get back to your soft Landing question yes so far it is looking uh like uh a soft Landing uh you plane hasn&amp;#39;t been landed yet so we&amp;#39;re not we&amp;#39;re not cheering yet but you know I would say the runway&amp;#39;s in sight um but you know we we still need to land this okay Greg Quinn from market news you&amp;#39;re next please good morning uh I want to ask about growth in the other sense because the statement mentions the idea that there&amp;#39;s room for growth in the economy even with an inflation slows I mean that&amp;#39;s a nice scenario a bit how big is that crawl space how do we have a substantial amount of room to grow from here without sparking new inflation pressure um well you know to go back to the previous question so with growth roughly zero in the second half of last year um excess Supply opened up in the economy and that&amp;#39;s actually been key to relieving price pressures has been an important reason why we&amp;#39;re seeing inflation and underlying inflation uh come down uh with some excess Supply in the economy what that means is there&amp;#39;s room for the economy to grow in fact there&amp;#39;s even room for economy to grow faster than potential for a period even as there are still downward there is still downward uh pressure on inflation so uh you know we will be revising our forecast in July I don&amp;#39;t have a new for for you today but um I think what we&amp;#39;re seeing in the first quarter our growth has resumed I think we expect um over the course of the year we expect household spending to gradually strengthen um and our message really is you know given that the economy is an excess Supply there is room for the economy to grow even as inflation keeps coming uh back down closer to the Target and you know so to get back to our decision today you know why did we conclude that monetary policy doesn&amp;#39;t be need to be as restrictive well an important reason is just looking at inflation itself core inflation our various measures of underlying inflation you know since the start of the year they&amp;#39;ve all been moving in the right direction uh the fact that the economy is an excess Supply though is another element that is giving us confidence that you know even as the economy uh even as growth presumes uh inflation can keep moving back towards the 2% Target okay our final question in the in the room here goes to daichi Mishima from Nik new service uh this is D Mishima with theik uh thank you for taking our questions uh govern M while you decided to cut rates uh you also decided to continue quantitative uh tightening it seems to me that you&amp;#39;re stepping on uh the gas and brake pedals at the same time so how do you determine when to stop QT and what are the conditions for that thank you um well I don&amp;#39;t see it quite the way you see it um the way we see it is um we&amp;#39;re normalizing our balance sheet um and as long as the let me put it we we we&amp;#39;ve gone through this before but I&amp;#39;ll go through it again you yes we we reduced our policy rate today by 25 basis points but at the policy rate of four and 3/4 monetary policy remains restrictive and in fact with inflation at 2.7% underlying inflation roughly 2 and 3/4 perc we still need restrictive monetary policy there is still some work to do to get inflation back to Target it doesn&amp;#39;t need to be as restrictive um but we still need restrictive monetary policy and in that sense continuing QT continuing to normalize our balance sheet makes sense if we were to lower interest rates so much that we&amp;#39;re that we&amp;#39;re actually Pro trying to provide stimulus to the economy um you know that would be a different situation and in that situation we probably would uh stop QT because and then they would be working across purposes but that that&amp;#39;s not the situation we&amp;#39;re in now with respect to the the the path for um our balance sheet going forward um you know we have been letting uh maturing bonds roll off our balance sheet our balance sheet has been steadily uh shrinking um we will get to a point where uh our balance sheet is normalized and at that point we will resume our normal operations and nqt R uh resume normal operations and begin buying uh government debt once again um you know as Tony Grell has outlined in certainly in speeches that&amp;#39;ll probably happen sometime uh next year um and we will we will provide you know as we get closer to that point uh there is some uncertainty exactly where that Point&amp;#39;s going to be as we get start to get closer to that as we as we um you know hone in on on what the steady state level of settlement balances uh needs to be we will provide uh markets update on on on that okay that&amp;#39;s it for the room we&amp;#39;re going to go to those reporters who have joined us remotely I&amp;#39;m going to just remind people on the line please come off mute only to ask your question then go back on mute as soon as you have finished so everyone can hear the response I&amp;#39;m going to start with John Erman from Bloomberg BNN John please go ahead thanks so much uh Governor I just wanted to see if you could shed some light on how you think about the level of our dollar the currency the relationship with the US currency and this idea of us importing inflation if we see more weakness than the Looney and also since you haven&amp;#39;t been asked and the senior Deputy Governor Haven been asked about your PIN so far what happens to the Canadian economy if the edin and Oilers were to Stanley Cup uh well let&amp;#39;s hope a Canadian team let&amp;#39;s hope the Oilers win the Stanley Cup go Oilers um the Canadian dollar I mean you know as I said previously we have a flexible exchange rate and one of the ways monetary policy works is it works through the flexible exchange rate um and it&amp;#39;s the flexible exchange rate that gives us the ability AB ility to set interest rates in Canada uh that are geared to the needs of the Canadian economy so um you know we don&amp;#39;t have a target for the exchange rate we have a target for uh inflation um we believe in flexible exchange rates um and I think the you know by being clear about uh our forecast being clear about uh what&amp;#39;s on our mind uh you know by doing these press conferences by publishing the monetary policy report by providing a summary of deliberations I think markets know have a very good idea what&amp;#39;s on our mind and you know that that&amp;#39;s going to be reflected in the expected future interest rates that&amp;#39;s going to be uh expected in in the exchange rate that&amp;#39;s monetary policy working okay next on the list I&amp;#39;ve got uh Max sat from mace news max please go ahead thank you Paul Governor um leading up to today&amp;#39;s rate cut decision was there any discussion among the governing council members as to how this could affect the value of the Canadian dollar and import costs or how the policy difference with other major central banks could affect the real economy um yeah we discussed all those things of course we did um as I said um you know with with respect to the exchange rate um yeah it&amp;#39;s one of the ways monetary policy Works um and yes you know we&amp;#39;re you know we have been assessing the impact of higher interest rates on Canadian households on Canadian businesses and you we&amp;#39;ve you know we know it&amp;#39;s been difficult we know it&amp;#39;s squeezed households and businesses uh that has relieved price pressures in Canada and we came to the conclusion of this meeting that monetary policy doesn&amp;#39;t need to be uh as restrictive as it has been so we lowered the policy right so yes those are the things that we&amp;#39;re we&amp;#39;re looking at so maybe I&amp;#39;ll add I mean if you think about this past runup and inflation um in the early days a lot of what was going on was was Global so there was uh commodity prices there was supply chain impacts and so central banks across the globe were acting sort of in a in concert we were we were doing the same thing CU we were seeing the same things we were dealing with the same thing as inflations come down what is remaining for most of us is really more about what&amp;#39;s in our domestic economies and so it&amp;#39;s logical that we&amp;#39;re going to diverge a bit because what we&amp;#39;re doing is responding to what&amp;#39;s what&amp;#39;s in our what&amp;#39;s in our our domestic economy and that&amp;#39;s different um and it&amp;#39;s different for a variety of reasons that the governor&amp;#39;s mentioned it&amp;#39;s different because uh monetary policy is working a bit differently in each economy um there&amp;#39;s different factors so so although we were we were quite coordinated on the way up and that was really helpful because a big part of inflation was Global um you&amp;#39;re going to see some Divergence on the way down and that that makes sense okay next I&amp;#39;ve got Rob M CL from mortgage logic news go ahead Rob good morning uh I&amp;#39;m wondering how Canadians should view the bank&amp;#39;s estimated neutral rate now that we&amp;#39;ve pivoted to an easing cycle so you other words if inflation evolves as the bank Canada projects and drops back to 2% is it reasonable to expect the overnight rate should get close to the bank&amp;#39;s estimated neutral rate uh okay well the first thing I need to tell you is I don&amp;#39;t think Canadians should spend a lot of time thinking about the neutral rate um the neutral rate is it&amp;#39;s it&amp;#39;s a theoretical concept it&amp;#39;s something we need in our models I mean the neutral rate is you know where the policy rate would settle in the long run when the output Gap is closed inflation is back to Target and there are no new shocks in other words we&amp;#39;ll never get there there&amp;#39;s always going to be new shocks there&amp;#39;s always going to be new events um you know the interest rate is the thing that we adjust to get inflation back to Target and to keep it there um now we do need you know we do need an estimate of the neutral rate we can&amp;#39;t observe the neutral rate obviously directly we do need to put an estimate of the neutral rate in our models uh and in the spirit of transparency uh we we publish our estimate of the neutral rate we we updated our estimate uh last U at our last monetary policy report in in April and we increased the neutral rate uh estimate by 25 basis points or we have a range the midpoint of the range is is 275 um look I I know you know so you know talk of the terminal rate the neutral rate I I really think um you&amp;#39;re getting ahead of yourselves uh if you want to know where we&amp;#39;re headed we&amp;#39;re headed to 2% inflation and the interest rates are going to be what they need to be to get us there and keep us there I mean what what you know as we&amp;#39;ve said looking the near term if the economy continues to evolve broadly as we expect if we continue to see inflationary pressures ease it is reasonable to expect um further Cuts in our policy rate but the timing is is is very much going to depend on incoming data and our assessment of what that means for the path for inflation uh you know when you look out beyond that I mean we don&amp;#39;t have a crystal ball um but you know what we what we have said uh a few times in the past is that if you look at where interest rates were after the global financial crisis and before covid hit uh it was a period of unusually low interest rates when you when you look at that today a number of the forces that resulted in those very low interest rates look to be unwinding so you know we don&amp;#39;t have a crystal ball but it it does seem likely that interest rates while we do expect they&amp;#39;re going to come down they&amp;#39;re probably not going to come down as low as they were preo or or to put it another way um it would be prudent for for households and businesses and and governments not to plan on interest rates getting back to preco levels okay and our final question goes to Barbara sheer from the financial post hello uh thanks for taking the call uh or the question uh I wanted to ask uh if you modeled how far you can diverge from the FED uh your financial stability uh report talked a lot about the interconnectedness of the financial market so you&amp;#39;ve obviously looked at that um so how how far can you diverge before it starts to flow into problems with the currency and markets like the bond market that kind of thing um well I think you can you you can you can look over history and see uh how much we have diverged at various times in the past and give you some guideline uh you know as I said we&amp;#39;re not we&amp;#39;re not close to that I think uh I think the market you know as as a senior Deputy Governor just indicated um conditions are somewhat different in Canada the United States inflation has been easing consistently in Canada it&amp;#39;s been stickier in the United States US economy has been stronger um conditions are different I think markets uh are seeing that um and you know that&amp;#39;s been built into uh our rate expectations it&amp;#39;s certainly something that factored into our decision and I think you know markets will continue to uh absorb the incoming information so I don&amp;#39;t think we&amp;#39;re close to that limit you know I don&amp;#39;t think it&amp;#39;s like there&amp;#39;s no sort of bright line um and you can see from history there have been periods of uh you know considerable Divergence and with that that will conclude today&amp;#39;s press conference uh thank you Governor senior Deputy Governor and thank you everyone for joining us we&amp;#39;ll see you in a few weeks for the NPR thanks very much thank you

Transcript for:Press Conference on Interest Rate Announcement by the Bank of Canada

Transcript for:
Press Conference on Interest Rate Announcement by the Bank of Canada