(Ottawa) The Board of Directors of the Bank of Canada considered waiting until July to lower interest rates, but ultimately decided to reduce them earlier, reveals the summary of the central bank’s deliberations.
The summary details discussions between Governor Tiff Macklem and his deputies in the lead-up to the June 5 monetary policy announcement, in which the central bank lowered its key rate.
“ [Les membres] were aware of the risk that progress would stall – as had been the case in the United States – but core inflation had fallen for four consecutive months and indicators suggested that this slowdown would continue. Agreeing that the progress made was sufficient to justify an initial reduction in the key rate, they decided to immediately reduce it by 25 basis points to 4.75%,” the summary said.
The quarter-point reduction marked the first time the central bank had lowered its benchmark rate since March 2020, a turning point in its fight against high inflation.
Before the rate decision, most observers expected the central bank to make its first cut, although some thought it likely it wouldn’t come until July.
Annual inflation in Canada reached 2.7% in April, while measures of underlying price pressures also eased.
With its policy rate now standing at 4.75%, the summary reiterates the central bank’s cautious approach, noting that it plans to make future interest rate decisions one by one.
Although a single reduction in the key rate is not expected to have a major effect on the economy, it signals the start of an easing cycle for the Bank of Canada.
The real estate market, in particular, is expected to recover in the coming months after a sharp slowdown in activity.
Economists will have their eyes on how much the housing market will heat up as interest rates continue to fall.
The Bank of Canada will have to review two more inflation reports before its next interest rate decision, scheduled for July 24.
The summary of deliberations details some of the risks discussed in the Governing Council, including a greater-than-expected economic slowdown as households renew their mortgages at higher rates.
On the other hand, the central bank took into account the possibility that rate cuts could revive the real estate market.
The summary states that the Governing Council is also paying attention to how population growth will continue to affect the economy and inflation.
“The timing of the government’s measures to slow the growth in the number of non-permanent residents and the impact of these measures could affect inflation and growth forecasts,” the summary states.
The federal government plans to reduce the share of temporary residents in the country to 5% of the total population.
According to Statistics Canada, temporary residents represented 6.8% of the population in 1er april.