By Ketki Saxena
The Bank of Canada (BoC) chose not to raise interest rates earlier this month, citing a need for further evidence on the effects of previous monetary tightening measures on economic growth and inflation.
Today's release of the BoC's Summary of Deliberations (essentially its meeting minutes) once again downplayed market expectations for an imminent rate cut this year.
The meeting's minutes indicated that all six members of the governing council acknowledged that economic growth had exceeded January's forecasted levels. However, they also expressed concern about achieving their target of reducing inflation to 2% during the latter half of this year and seriously considered raising rates again in April, but decided to remain on the sidelines and assess incoming data.
"The case to maintain the policy rate at 4.50% reflected Governing Council's view that headline inflation is coming down quickly in line with the Bank's forecast and that more evidence would be needed to assess whether monetary policy was sufficiently restrictive," said the minutes.
Last year saw Canadian inflation reach its peak at 8.1%, but it has since declined, settling at 4.3% in March.
The BoC projects that inflation will reach 3% this summer, but has also cautioned that attaining the 2% target may take longer than anticipated, given persistent services costs and growing wages. The latter is partly attributed to a tight labor market and stronger-than-expected economic growth during Q1.
"Governing Council acknowledged that the labor market was still tight and the slowing in growth would likely come a little later," noted the minutes. "Governing Council agreed that... there was a sense that the economy was proving a little stronger than expected."
Following their decision to hold interest rates steady this month, the minutes indicated that money market expectations of a rate cut later this year did not align with what they considered "the most likely scenario."
Canadian inflation – excluding food and energy costs – is expected to continue above 3% until Q4 of this year, potentially undermining hopes for an early shift by the BoC towards cutting interest rates.