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Free AccessMNI: BOC Saw 'Gradual' Cuts Mirroring Price Slowdown- Minutes
Bank of Canada officials agreed at their meeting this month that further reductions in interest rates following the first cut in four years would be "gradual," to reflect the grind of inflation all the way back to the 2% target, minutes from the June 5 decision showed Wednesday.
"Members also agreed that monetary policy easing would likely be gradual given that inflation is forecast to ease toward the target gradually," the minutes said. "The timing of any further reductions in the policy rate would depend on incoming data."
Governor Tiff Macklem and his deputies lowered the key rate a quarter point to 4.75%, down from the highest levels since 2001. Officials say more cuts to restrictive policy will be appropriate if inflation keeps moving back to target. A majority of investors sees another cut at the July meeting and about a third see a delay until at least September. (See: MNI INTERVIEW: BOC Seen Cutting Again In Sept-Conference Board)
Officials discussed the idea of diverging from the Fed, and the minutes reiterated Macklem's position the BOC is nowhere near the limit of how far Canada can go, calling a flexible exchange rate "a key feature" of monetary policy. "Members discussed many potential drivers that could affect the exchange rate, including market expectations for monetary policy divergence," the minutes showed.
PENT-UP HOUSING DEMAND
Discussions again reflected some ambivalence around economic pressures including strong wage gains and sluggish inventory investment in the first quarter GDP report. There was agreement around evidence of a broad easing of other labor market conditions.
Officials also concluded that four months of positive core inflation news justified less restrictive monetary policy. The share of the CPI basket showing big price gains was returning to normal and pressure in services prices was also seen as being offset by goods prices.
Policymakers are paying more attention to swings in record immigration flows and whether that could boost pressure on housing rental rates. BOC members said "cuts to interest rates could lead to an overheated housing market, given pent-up demand."
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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.