By Paul Vieira

OTTAWA--Bank of Canada Governor Tiff Macklem said Wednesday officials are determined to get inflation down to the central bank's 2% target, but there's enough cooling in the economy to start bringing rates lower.

Macklem said rate policy has had more traction in Canada relative to the U.S. - in part because of some of the highest consumer and corporate debt levels in the developed world - and that allowed his central bank to cut before the Fed. The Federal Reserve on Wednesday held its main policy rate steady, and officials forecast just one rate cut this year.

"We still need to get inflation down further to our targets," Macklem said at a Montreal conference, speaking alongside Bundesbank president Joachim Nagel. Still, "with further and more sustained evidence that underlying inflation is easing, monetary policy no longer needs to be as restrictive as it has been."

Macklem said officials will decide on a meeting-by-meeting basis whether further rate cuts are appropriate, although told the audience they could assume borrowing costs "will continue to come down gradually." He said there are limits on how deeply the central bank can cut with the Federal Reserve on hold, although adding Canada is not close to such limits. The Canadian dollar weakened slightly after the Fed issued its policy decision.

Last week, the Bank of Canada was the first Group of Seven authority to cut interest rates, to 4.75% from 5%, citing increased confidence that inflation was moving close to its 2% target. Macklem said more cuts were possible should inflation continue to show signs of slowing, leading traders and economists to price in another rate cut in July.

Macklem said high rates have cooled economic activity, with gross domestic product up a meager 0.5% in the first quarter over a one-year period. Underlying, or core, inflation continues to ease gradually, he said. Per-capita GDP has declined in six of the past seven quarters.

Canada's rate decision marked a start among G-7 economies to lower borrowing costs, after a rapid-fire set of rate increases to wrestle down historically high inflation. The European Central Bank followed suit a day after the Bank of Canada with a rate cut of its own.

Write to Paul Vieira at

(END) Dow Jones Newswires

06-12-24 1648ET