Canadian Prime Minister Justin Trudeau expects interest rates to start coming down by the middle of next year, in line with recent Reuters poll estimates. However, the latest economic data has turned the central bank more hawkish. Trudeau stated in an interview with the New York Times that things are going to start getting better, with inflation coming down and interest rates likely to decrease by the middle of next year.
Trudeau’s popularity, as measured by opinion polls, has dropped as Canadians face a cost-of-living crisis caused by the central bank’s record pace of interest rate increases to control inflation.
The inflation has eased from its peak, but the August Consumer Price Index (CPI) rose to 4%, exceeding the central bank’s 2% target. Bank of Canada Governor Tiff Macklem mentioned that rates may not be high enough. According to a recent poll, the majority of economists expect the Bank of Canada to maintain its policy rate of 5% or higher until at least the end of March 2024. The median prediction suggests a 50 basis point cut by the end of June next year, aligning with expectations for the U.S. Federal Reserve.
Trudeau has entered a sensitive monetary policy debate, and previous comments on interest rates by him and other provincial politicians have raised concerns about the central bank’s independence. Finance Minister Chrystia Freeland defended the Bank of Canada’s independence after her comments that holding the interest rate steady was welcome relief for Canadians prompted criticism.
The Prime Minister’s Office declined to comment on Trudeau’s remark. The leader of the Conservative Party, Pierre Poilievre, has attributed the inflation and affordability crisis to the Trudeau government’s significant pandemic spending. Trudeau acknowledged that people are worried and frustrated with the government’s handling of the situation.
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