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Free AccessMNI: BOC Saw Danger In Extending Rate Pause- Meeting Minutes
Bank of Canada officials saw the economy running hot into the second quarter and a need to get ahead of persistent inflation pressure, according to minutes from the June 7 decision to end the pause of interest-rate hikes.
Officials discussed "the need to be forward-looking and not wait too long to ensure that monetary policy was restrictive enough," according to the six-page document released Wednesday from Ottawa.
"More recent data, particularly the increase in housing resales, suggested additional momentum in household sector demand. Growth in the second quarter was therefore viewed as likely to be stronger than forecast in the April Monetary Policy Report," the summary of deliberations showed.
The Bank's earlier announcement of a quarter-point hike to 4.75% mostly dissected the recently released first-quarter GDP report showing resilient consumer spending. That strength came even after eight consecutive rate hikes through January before officials signaled the pause. Earlier Wednesday, government figures showed consumers on the march again with retail sales up 1.1% in April and a preliminary gain of 0.5% in May, keeping some investor bets in place for another hike at the July 12 meeting. (See: MNI INTERVIEW: BOC Hike Is Precursor For More- Laval U's Gordon)
STUCK INFLATION
The Bank's key lending rate is the highest since 2001 and going further comes with risks of a mismatch with the Fed's recent pause, but also of destabilizing one of the world's most stretched housing markets. The minutes again underlined concern among Governor Tiff Macklem and his deputies that inflation may become stuck well above their 2% target even if CPI soon moderates to about 3%.
Officials noted the last inflation report ticked up to 4.4% from 4.3% for the first gain in 10 months and "Governing Council had been expecting inflation to continue to decline."
"All members felt that a broad range of indicators had increased their concern that the disinflationary momentum needed to bring inflation back to the 2% target could be waning," the minutes showed.
Canada's record flow of immigrants in recent months still doesn't account for all the strength in consumer spending and "Governing Council agreed that the economy remained clearly in excess demand and that the rebalancing of supply and demand was likely to take longer than previously expected."
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.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.