Bank of Canada governor Tiff Macklem said market participants who interpret his decision to take a break from raising interest rates as a prelude to cuts might be getting ahead of themselves.

Macklem used a speech in Quebec City on Feb. 7 to reiterate that the central bank would be taking a conditional pause on rate hikes over the months ahead to determine if enough has been done to reverse inflation. However, the governor was definitive that policymakers aren’t planning on cuts anytime soon.

“I want to be very clear: we are pausing interest rate hikes to assess whether we raised interest rates enough to get inflation all the way back to target,” Macklem told reporters after his speech. “Monetary policy works with the lag. We’ve raised rates rapidly. We’re seeing the effects. We know there’s more to come. It makes sense to pause and assess whether we’ve done enough.”

Bay Street might not be getting the message. In the Bank of Canada’s inaugural Market Participants Survey, released this week, median expectations of 28 analysts anticipate that rates will come off its 4.5 per cent level around September and October and fall back down to four per cent by December.

The survey was conducted at the end of last year, so predates Macklem’s pledge last month to press pause on the most aggressive series on interest rate increases in the Bank of Canada’s history. Still, the survey underscored expectations that a recession could force Macklem to lower borrowing costs, complicating his attempt to convince the public that his priority is crushing inflation.

Macklem noted that market expectations are a moving target, pointing to the roughly two-week lag between when the responses are collected and when the results are published.

“The market expectations further out have firmed up,” Macklem said. “So, if you’re going to do the survey today, you’d probably get somewhat different results.”

The central bank raised the benchmark rate a quarter point in January, but simultaneously said that would enough for now, as long as inflation continued to decelerate. It was the eighth consecutive increase, leaving the policy rate at 4.5 per cent compared with 0.25 per cent this time a year ago.

Inflation has been stubbornly high for the last few months, moving down slowly in incremental notches — from a peak of 8.1 per cent in June, to about seven per cent at the end of summer, to 6.3 per cent in December. That’s why Macklem is not closing the door on further rate hikes if he deems them necessary to bring decades-high price pressures to heel.

“We will be assessing economic developments relative to (the January) forecast,” Macklem said in his remarks. “If new evidence begins to accumulate that inflation is not declining in line with our forecast, we are prepared to raise our policy rate further.”

Macklem flagged some risks in his projections that could complicate the central bank’s mission.

“The biggest is that global energy prices could increase, pushing inflation up around the world,” Macklem said in his speech. “We’re also concerned that inflation expectations could remain elevated and increases in labour costs could persist. If these upside risks materialize, we are prepared to raise interest rates further to return inflation to the two per cent target.”

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