There's a limit to how much interest rates in Canada and U.S. can diverge: Macklem

Bank of Canada governor Tiff Macklem says Canadian interest rates don't have to match U.S. or global rates, but there is a limit to how much they can diverge.

Macklem made the comments while testifying before the House of Commons finance committee today.

The governor says Canada is nowhere close to the limit when it comes to how much Canadian and American interest rates can differ.

The Bank of Canada is widely expected to begin lowering its policy rate in the coming months, while forecasters expect the U.S. Federal Reserve to take longer.

The Federal Reserve held interest rates on Wednesday and signalled it won't cut them until it is more confident that the annual inflation rate is headed back to the two per cent target.

The Bank of Canada's key interest rate is currently sitting at five per cent, which is below the U.S. Federal Reserve's target range for the funds rate of 5.25 to 5.5 per cent.