(OTTAWA) The Bank of Canada did not discuss an interest rate hike earlier this month in deliberations ahead of its policy rate announcement, but members were still concerned that the inflation is more difficult to reduce than expected.
The central bank on Wednesday released a summary of its governing council’s deliberations ahead of its decision to keep its key rate at 4.5% on March 8.
Governing council members, including the governor and his deputies, were encouraged to see the economy and inflation slowing, supporting their decision to hold interest rates.
The summary of discussions made no mention of members discussing the possibility of raising the key interest rate.
However, the board remained concerned about the risk of inflation remaining significantly above its 2% target and agreed that demand still exceeded supply in the economy.
The Canadian economy posted no growth for the fourth quarter of 2022, largely due to slower business inventory accumulation.
“Because the inventory adjustment had come earlier than expected, they concluded that growth in early 2023 could be somewhat stronger than the bank had expected,” the summary said.
Ahead of the federal and provincial governments rolling out their budgets, the leadership council also discussed the risk of high government spending further fueling demand in the economy.
Federal Finance Minister Chrystia Freeland has pledged that her March 28 budget will be subject to budgetary restrictions, noting that the federal government does not want to make it difficult for the Bank of Canada to fight against the inflation.
The central bank has indicated that it will incorporate the fiscal plans of both levels of government in its updated projections, which will be published in the next Monetary Policy Report.
The Bank of Canada will release this report, along with its next interest rate decision, on April 12.
Economists widely expect the central bank to hold its key rate once again.
Statistics Canada’s latest Consumer Price Index report showed that annual inflation slowed further in February, falling to 5.2%.
However, the tight labor market and strong wage growth remain constant concerns for the Bank of Canada.
The unemployment rate continues to hover near record lows, while average hourly wages have increased at an annual rate of 4% to 5%.
The Bank of Canada noted in its summary of proceedings that the governing council continued to believe that the pace of wage growth would make it more difficult for inflation to return to its 2% target, given that wage growth is not accompanied by productivity growth.