The Governing Council of the Bank of Canada considered waiting until July to raise its key interest rate, but ultimately decided to act sooner in the face of economic data indicating an overly vigorous economy.
The central bank released its summary of proceedings for its June announcement on Wednesday, shedding light on the decision to raise its key interest rate by a quarter of a percentage point to 4.75%. This is its highest level since 2001.
The rate hike came after the central bank announced a pause in its rate hikes earlier this year. She then seemed to be fairly hopeful that interest rates would be high enough to stifle inflation.
But the Bank of Canada said the decision to raise rates was prompted by a recent spate of economic data that showed annual inflation was rising and consumer spending had been more resilient than expected. These figures reinforced the concerns of members of the central bank’s governing council, who ultimately decided that higher rates were necessary to calm inflation.
Members of the governing council, which include the central bank’s governor and deputy governors, debated whether to raise interest rates immediately or signal that a rate hike was likely in July. The decision to wait would have allowed the board to see more economic data before raising rates again, the central bank said.
“On the other hand, the members felt that the accumulation of data was sufficient to convince them that a more restrictive monetary policy was required. Thus, it was best to do what is necessary and continue to assess the evolution of the economy to guide actions to be taken in the future,” the bank explained in its summary.
The rate hike came after data showed annual inflation rose slightly to 4.4% in April, and the economy grew faster than expected in the first quarter. Consumer spending was particularly strong, rising 5.8% in the first three months of the year.
The labor market also remained exceptionally tight, although data released after the rate hike showed the jobless rate rose to 5.2% in May.
The Bank of Canada did not say whether it planned to raise interest rates again on July 12 and said it would make its decision based on incoming data. However, many forecasters are expecting another rate hike, noting that the central bank will want to redouble its efforts to slow the economy.