The Governor of the Bank of Canada, Tiff Macklem, said he expects 2024 to be a transitional year as rising interest rates slow the economy, paving the way for inflation to decrease.

In his final speech of the year, Governor Macklem outlined his expectations for a more moderate economy next year and presented criteria for the central bank to begin discussing a cut in the benchmark interest rate.

"The effects of previous interest rate hikes will continue to impact the economy, limiting spending and restricting growth and employment. Unfortunately, this is what is necessary to eliminate the remaining inflationary pressures," said Tiff Macklem, Governor of the Bank of Canada.

But he added that this weakness is what will help lower inflation to its target, which in turn will open up the possibility of discussing interest rate cuts.

Nevertheless, Macklem warned that nothing is certain and there may be obstacles along the way.

Macklem said that once the institution's board is confident that we are clearly on the path back to price stability, we will consider whether we can lower our interest rate and when. I know it is tempting to rush into this discussion, but it is still too early to think about cutting the policy interest rate.

Until then, the Governor said the central bank will continue to discuss whether interest rates are high enough to reduce inflation.

He also pointed out that the world is witnessing increasing economic volatility, requiring central banks to be flexible.

The Bank of Canada has chosen to keep the benchmark interest rate steady at five percent during its last three interest rate decisions. Economists generally estimate that their next step will be a cut, and that this will happen sometime next year.

Macklem's speech also reflected the lessons the central bank learned this year, including the importance of communication.

To this end, the institution now plans to hold press conferences in conjunction with each interest rate decision, not just once every quarter.