OTTAWA (Reuters) – There is a limit to the divergence between U.S. and Canadian interest rates, but “we are certainly not close to that limit,” Bank of Canada Governor Tiff Macklem told the House of Commons Finance Committee on Thursday. .
Macklem reiterated that the central bank is waiting to see if the recent decline in underlying inflation is sustained before starting to cut interest rates from 5%, a 23-year high.
The money market sees the probability of a June interest rate cut as more than 50%, and has fully factored in a rate cut through September.
But in the United States, by far Canada’s largest trading partner, the Federal Reserve stressed on Wednesday that recent inflation data were disappointing and the pace of interest rate cuts south of the border could slow. did.
“We can run our own monetary policy, so Canadian interest rates don’t have to be the same as U.S. or global interest rates,” Macklem said.
“But there is a limit to their divergence. We are certainly not close to that limit.”
Macklem reiterated that the impact of tight monetary policy is greater in Canada than in the United States, given the fact that interest rates on household debt are higher in Canada and most mortgages must be renewed every five years. .
Macklem added that inflation, currently at 2.9%, remains well above the central bank’s 2% target and is likely to remain around that level for several months, in part due to rising gas prices. .
(Reporting by David Ljunggren and Promit Mukherjee; Editing by Franklin Paul)
