Bank of Canada Governor Tiff Macklem recently suggested that the measures taken to tackle inflation are working, indicating a potential pause in the ongoing trend of interest rate increases.

In his latest public statement since holding the rate at 5% in October, Macklem pointed out that the less optimistic economic outlook implies the emergence of further disinflationary forces in the future.

“This tightening of monetary policy is working, and interest rates may now be restrictive enough to get us back to price stability,” said Macklem on Wednesday in Saint John, N.B.

“The economy is approaching balance.” 

His comments followed the release of data indicating a slowdown in annual inflation to 3.1% in October, marking the lowest rate since June. 

Additionally, a core inflation metric monitored by the bank dropped below the 3% threshold.

Macklem’s remarks convey a growing confidence from the Bank of Canada that the economy will cool, reducing the need for additional interest rate hikes. 

Analysts and market forecasts suggest the bank is likely to maintain rates in the upcoming decision in two weeks, with a potential shift towards interest rate reductions by mid next year. 

Macklem also observed that businesses appear to be adapting their pricing more conventionally, mitigating a significant inflation risk that the bank had been closely monitoring.

However, he emphasized challenges related to maintaining economic stability. Responding to questions about potential differences in approaches among policymakers in October regarding whether to maintain or increase rates, Macklem acknowledged a discussion about a potential hike but affirmed unanimous agreement among members to keep rates unchanged.

“With higher inflation in the last couple of years, we’re seeing more strikes as employers and workers struggle to reconcile rising costs on each side,” said Macklem. 

“The past two years have been a painful reminder of how much high inflation hurts households, businesses and communities. It’s our common enemy. We want to see high inflation defeated.”

Macklem reiterated the premature nature of considering interest rate reductions, emphasizing the importance of clear indications that economic conditions are improving before contemplating any reduction in rates.