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MNI: BOC Minutes Say Some Thought Another Hike Would Be Needed

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Bank of Canada officials were split on whether high-for-long interest rates would restore price stability or further tightening would be needed, according to minutes published Wednesday of the October 25 decision, which held borrowing costs at the highest since 2001.

"Some members felt that it was more likely than not that the policy rate would need to increase further to return inflation to target," according to the Summary of Deliberations. "Others viewed the most likely scenario as one where a 5% policy rate would be sufficient to get inflation back to the 2% target, provided it was maintained at that level for long enough." The Governing Council that sets borrowing costs has six members.

Most investors and economists predict the Bank is done after 10 earlier hikes and see a cut around the middle of next year. Governor Tiff Macklem has said it's far too soon to think about cuts but rates could move before inflation returns to 2% if there's evidence prices are stabilizing around that target. The Bank says it will take until 2025 to get inflation back in line.

Officials last month saw increasing evidence consumers were pulling back on interest-sensitive spending and of a cooling job market, even with inflation risks growing amid factors such as higher crude oil prices, the minutes showed.


That led to "a strong consensus" that the Governing Council should be patient, while agreeing "to revisit the need for a higher policy rate at future decisions." With inflation slow to return to target, officials reiterated they need to see continued progress to be assured monetary policy is returning price gains to target. (See: MNI INTERVIEW: BOC Path Tied To Core Prices- Laurier's Siklos)

Discussions also focused on Canada's housing squeeze, calling it "an ongoing structural shortage" of supply and under more pressure from a surge in population. The government recently said it would "stabilize" immigration in a few years after record inflows.

"Given that increasing the supply of housing enough to substantially narrow the shortfall will take time, shelter price inflation could continue to contribute more than normal to overall inflation for some time," the report said.

The Bank began publishing minutes this year following an IMF recommendation, and doesn't provide vote tallies in a system where only the governor is legally responsible for policy. Officials often say they make decisions by consensus.

MNI Ottawa Bureau | +1 613-314-9647 |
MNI Ottawa Bureau | +1 613-314-9647 |

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