Bank of Canada Governor Tiff Macklem has suggested that a modest reduction in interest rates could serve as a confidence booster for the economy, signaling potential easing, says Blacklock's Reporter.

However, Macklem emphasized the importance of timing and caution in implementing such a measure.

Addressing the Senate banking committee, Macklem acknowledged the interest among Canadians regarding a possible policy interest rate cut.

"What do we need to be convinced it’s time to cut? The short answer is we are getting closer," Macklem stated.

"We are seeing what we need to see but we need to see it for longer to be confident that progress toward price stability will be sustained."

When asked about the potential impact of an interest rate cut, Macklem affirmed that it could instill confidence in the economy.

"Yes, I think a cut in interest rates would signal certainly that we are more confident," he said. However, he cautioned against moving too quickly or prematurely in implementing such a measure.

Macklem highlighted that mortgage costs and rents remain significant contributors to overall inflation, with gasoline prices expected to further impact the Consumer Price Index in the coming months.

He reiterated that the decision to lower interest rates would depend on inflation trends and the need to balance risks.

Sen. Elizabeth Marshall noted the anticipation among Canadians regarding a potential rate reduction. While Macklem did not provide a specific comment on future rate adjustments, he acknowledged that recent data in Canada has increased confidence.

The Bank of Canada last adjusted its key rate with a quarter-point increase in July 2023, bringing it to 5%. Senator Hassan Yussuff raised concerns about the impact of high mortgage interest rates on homebuyers and renters, suggesting they contribute to inflation challenges.

Macklem acknowledged the role of mortgage interest costs in inflation but emphasized the bank's understanding of the issue. "Mortgage interest cost is a big contributor to where inflation is right now," he stated. "That is something we understand very well. We can see through that."

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