CashNews.co
By Paul Vieira
OTTAWA–Canadian Finance Minister Chrystia Freeland said that despite three straight rate cuts from the Bank of Canada, borrowing costs “are still contractionary” and weighing on economic activity.
The Bank of Canada, she said, “still has the foot on the brake, really hard,” in remarks over the weekend in Montreal at a policy conference. Still, she said she has confidence that Canada is close to achieving a so-called soft landing–whereby the economy avoids a recession despite sharply raising interest rates to tame inflation.
“That means real relief for Canadians,” she said, adding that she hopes this will persuade households about the work to date by the governing Liberals in managing economic policy. In public-opinion polls, the Liberals are trailing their rivals, the Conservatives, by a wide margin, and cost-of-living issues are identified by pollsters as a major concern for households.
The Bank of Canada has cut interest rates at three consecutive meetings, to 4.25%, and officials indicate that further rate relief is the offing so long as headline and core inflation continue to slow. Central bank officials have also said they are increasingly focused on downside risks, and want to see growth of about 2% or more to absorb spare capacity–leading some central bank watchers to predict deeper rate cuts, or a half-percentage point, as early as next month.
Bank of Canada Gov. Tiff Macklem is scheduled to speak Tuesday at a Toronto event organized by the International Institute of Finance.
A growing share of economists believe interest rates in Canada could drop below the 3% threshold by mid-2025. The Liberals must face re-election before the fall of 2025.
Some economists argue that Canada has largely avoided a recession due to rapid-fire population growth–fueled nearly entirely by immigration–which has added to aggregate demand. Officials are trying to limit the number of newcomers entering the country, noting the big influx is placing a strain on housing, and health and social services.
Freeland said one of Canada’s strengths is welcoming new Canadians. “But we need to recognize that warm welcome will only be sustained if we as a country and different levels of government ensure that our country has the physical and economic capacity to welcome new Canadians.”
She added that the top priority is increasing the housing supply, and has unveiled a series of measures aimed at building about four million homes by 2031.
Write to Paul Vieira at [email protected]
(END) Dow Jones Newswires
09-23-24 1154ET