Some members of the Bank of Canada’s governing council are increasingly concerned that high interest rates could lower inflation more than necessary.
The central bank’s summary of deliberations released Wednesday provides a glimpse of the governing council’s discussions ahead of the policy rate cut that took place on September 4.
Some members saw risks as balanced, with strong inflation in the housing and services sectors offsetting downward pressure from excess supply, the summary said.
They “had become more concerned about downside risks to inflation, particularly if the economy and labor market weakened further,” the central bank said.
Real estate recovery
The summary comes a day after Statistics Canada reported that inflation hit 2% last month, finally meeting the Bank of Canada’s target.
Forecasters are bracing for the possibility of deeper interest rate cuts in the coming months, given the significant progress made on the inflation front. The summary of deliberations reiterates that the central bank is prepared to slow or accelerate the pace of rate cuts, depending on the evolution of inflation.
CIBC expects the Bank of Canada to cut its key interest rate from 4.25% by two percentage points by mid-2025. The next rate announcement is scheduled for October 23.
Although housing remains the main driver of inflation, inflation has started to slow in the real estate sector and the risk of reacceleration has diminished, the document reads.
“Members indicated that the housing market could still recover faster than expected,” the summary said.