When to cut rate? The Bank of Canada still can’t decide

Members of the Bank of Canada’s governing council disagreed on how long to hold interest rates before cutting them.

Some board members advocated a more cautious approach to cutting rates, according to a recently released central bank report on discussions.

“Some board members stressed that with the economy performing well, the risk that contractionary monetary policy would slow the economy more than needed to bring inflation back to target has diminished,” the summary said. They believe more safeguards are needed to reduce the risk of stalling progress in reducing core inflation without jeopardizing the progress made so far.”

However, other decision makers “paid more attention to the progress made in reducing inflation and were concerned about maintaining elevated rates for too long, given the risk of excessive economic contraction.”

Despite this division, the council unanimously decided on April 10 to keep the interest rate at 5% for now. Board members also agreed that future rate cuts are likely to be gradual, given the risks and time needed to achieve sustainable inflation control.

Canada’s inflation rate fell to 2.9% in March, returning to the Bank of Canada’s 1-3% control range after more than a year of exceeding it. Core inflation indicators also showed an easing in price pressures in recent months.

Central bank officials acknowledged that the decline in core inflation in January and February was “ongoing” easing and they wanted the easing to be “sustainable.”