July 16th, 2024

BoC considered waiting until July to cut interest rates, summary says

By Nojoud Al Mallees, The Canadian Press on June 19, 2024.

The Bank of Canada's summary of deliberations says the central bank's governing council thought about waiting until July to lower interest rates, but ultimately decided to cut earlier. Tulips bloom as people make their way along Wellington Street and past the Bank of Canada in Ottawa on Monday, May 6, 2024. THE CANADIAN PRESS/Sean Kilpatrick

OTTAWA – The Bank of Canada’s governing council thought about waiting until July to lower interest rates but ultimately decided to cut earlier, the central bank’s summary of deliberations reveals.

The summary details the discussions between governor Tiff Macklem and his deputies in the lead-up to the June 5 rate announcement at which the central bank lowered its key rate.

“While they recognized the risk that progress could stall – as it had in the United States – there was consensus that with four consecutive months of easing in core inflation and indicators suggesting continued downward momentum, there had been sufficient progress to warrant a first cut in the policy rate,” the summary says.

The Bank of Canada’s quarter-point rate cut marked the first time the central bank lowered its policy rate since March 2020, marking a turning point in its fight against high inflation.

Ahead of the rate decision, most forecasters were expecting the central bank would deliver its first cut, though some were holding out for July.

Canada’s inflation rate reached 2.7 per cent in April, while measures of underlying price pressures eased as well.

With its key rate now standing at 4.75 per cent, the summary reiterates the central bank’s cautious approach, noting that it plans to take future interest rate decisions one at a time.

The Bank of Canada will have two more inflation reports to consider before its next interest rate decision scheduled for July 24.

The summary of deliberations details some of the risks discussed among the governing council, including a larger-than-expected economic pullback as a result of households renewing their mortgages at higher rates.

On the flip side, the central bank considered the risk that rate cuts could reignite the housing market.

The summary says the governing council is also paying attention to how population growth will continue to affect the economy and inflation.

“The timing and impact of government plans to unwind the rapid growth in non-permanent residents could affect the forecast for inflation and growth,” the summary says.

The federal government is planning on curbing the share of temporary residents in the country to five per cent of the total population.

According to Statistics Canada, temporary residents represented 6.8 per cent of the population as of April 1.

This report by The Canadian Press was first published June 19, 2024.

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