Bank of Canada's Macklem pledges caution on further rate hikes, says fiscal policy not hindering inflation fight

Bank of Canada Governor Tiff Macklem told the House of Commons finance committee on November 3 that policymakers will proceed carefully on further interest rate increases amid elevated trade and geopolitical uncertainty, while not ruling out more hikes.

File photo: a model of the Bank of Canada building. (Source: Bank of Canada Museum)

A hike to 2.5% last week

In his opening statement, Macklem largely reiterated the reasons behind last week's decision to raise the policy rate to 2.5%, the first increase in more than three years: a much higher inflation outlook and a modest improvement in growth.

He said the bank would proceed cautiously on delivering more increases, while reiterating that further hikes might be needed. Dow Jones reported that elevated trade and geopolitical uncertainty is a key reason for that caution.

Fiscal policy not hindering the inflation fight

On government fiscal policy, Macklem said the current stance is not making it harder for the bank to fight inflation. Reuters reported him saying the bank would only comment on government policy if it had become unsustainable or was making it harder to get inflation back to the bank's 2% target, and that neither criterion is met at present.

Macklem gave no commitment on the timing or size of any next move. Markets will watch upcoming inflation data and the bank's assessment of trade conditions, as well as further committee questioning.