Bank of Canada governing council members were at odds over how long to hold interest rates before reducing them.
According to the central bank's newly released summary of deliberations, Some council members advocated for a cautious approach before reducing rates.
"Some members emphasized that, with the economy performing well, the risk had diminished that restrictive monetary policy would slow the economy more than necessary to return inflation to target," the summary said. They felt more reassurance was needed to reduce the risk that the downward progress on core inflation would stall and to avoid jeopardizing the progress made thus far.”
However, others “placed more emphasis on the progress made in bringing inflation down and were concerned about keeping rates elevated for too long given indicators of excess economic slack.”
Despite this division, the council unanimously decided to keep the interest rate steady at 5% for now. They also agreed that future rate cuts would likely be gradual, considering the risks to the outlook and the time needed to achieve sustained inflation control.
"While there was a diversity of views about when conditions would likely warrant cutting the policy rate, they agreed that monetary policy easing would probably be gradual, given risks to the outlook and the slow path for returning inflation to target," the summary said.
Canada's inflation rate cooled to 2.9% in March, moving back into the BoC's 1-3% control range after over a year of overshooting. Core measures have also shown easing price pressures in recent month.
Officials acknowledged that the decline in core inflation in January and February was “further” easing, and they wanted to see this easing “sustained.”
Lastly, the governing council also agreed to continue its policy of normalizing its balance sheet by allowing maturing bonds to roll off.
CMP
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