Bank of Canada struck intentionally hawkish tone after last rate decision - minutes

2/2 © Reuters. FILE PHOTO: A sign is pictured outside the Bank of Canada building in Ottawa, Ontario, Canada, May 23, 2017. REUTERS/Chris Wattie/File Photo 2/2

By Steve Scherer and David Ljunggren

OTTAWA, Sept 20 (Reuters) - The Bank of Canada wanted to send the message that interest rates would not be coming down soon when it left them at a 22-year high after a policy meeting earlier this month, minutes published on Wednesday showed.

The Bank of Canada (BoC) kept its key rate at 5% on Sept 6, noting the economy had entered a period of weaker growth, but said it could hike again should price pressures persist.

A day later Governor Tiff Macklem said interest rates may not be high enough to bring inflation back down to its 2% target even after 10 hikes of a total of 475 basis points since March of last year.

The hawkish tone struck by the BoC since the latest rate decision was intentional, according to the minutes, or summary of deliberations, of the six Governing Council members.

They "considered the possibility that their decision could be misinterpreted as a sign that policy tightening had ended and that lower interest rates would follow," the summary read.

It continued: "They agreed that they did not want to raise expectations of a near-term reduction in interest rates, given that they only considered keeping the policy rate where it is or raising it further."

The BoC emphasizes that core, or underlying inflation, has been sticky. Deputy Governor Sharon Kozicki said on Tuesday it was above a level consistent with achieving the 2% target.

Also on Tuesday, official data showed headline inflation jumped to 4.0% in August from 3.3% in July and two of three of the BoC's core inflation measures also gained.

After the August inflation data were released, money markets raised bets for a rate hike after the next policy meeting on Oct. 25. On Wednesday the markets saw a 43% chance of an increase, compared with 23% before the figures came out on Tuesday.

In January, the BoC said it was pausing its rate hikes to let them sink in, prompting money markets to start pricing in cuts to borrowing costs this year and sparking a jump in housing prices, which had been slumping.