The Bank of Canada debated holding interest rates steady in June and signaling it would hike at its next meeting, according to a summary of deliberations.
(Bloomberg) — The Bank of Canada debated holding interest rates steady in June and signaling it would hike at its next meeting, according to a summary of deliberations.
Governor Tiff Macklem and five other policymakers ultimately opted to raise the benchmark overnight rate to 4.75% earlier this month, after enough evidence had accumulated to suggest borrowing costs weren’t restrictive enough.
The deliberations, released Wednesday in Ottawa, highlighted the bank’s surprise at Canada’s robust economic growth, particularly in household consumption, with officials noting that the economy remained “clearly in excess demand.” Policymakers also reiterated concern about underlying price pressures remaining sticky.
“All members felt that a broad range of indicators had increased their concern that the disinflationary momentum needed to bring inflation back to the 2% target could be waning,” the bank said in the summary.
While mostly backward looking, the document suggests policymakers are comfortable fine-tuning monetary policy as they watch how data respond to one of the most aggressive hiking cycles in the bank’s history.
“It was preferable to take the required action and continue to assess economic developments to guide future actions,” officials said.
Policymakers noted that “monetary policy did not look to be sufficiently restrictive,” given household spending growth, rising consumer confidence and a slowdown in disinflation.
Importantly, a resurgence in sales activity in Canada’s housing markets was flagged as evidence of renewed demand momentum in the household sector.
Policymakers noted the country’s labor market remained “tight,” and said consumption remained stronger and more widespread than was previously expected, even after accounting for record population growth.
The deliberations made no mention of how Macklem and his officials retrospectively viewed their decision to explicitly declare a conditional pause in January.
Swaps traders expect the Bank of Canada will raise interest rates by at least another 25 basis points this year. Before the release, markets put the odds of that happening at the July 12 meeting at about three-quarters.
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