MNI: BOC Saw Rate-Cut Conditions Emerging This Year- Minutes

Bank of Canada officials agreed their economic projection suggests interest rates could decline this year while diverging on the timing, according to minutes of the March 6 decision to keep monetary policy unchanged that were published on Wednesday.

"Members agreed that if the economy evolves in line with the Bank’s projection, the conditions for rate cuts should materialize over the course of this year. However, there was some diversity of views among Governing Council members about when there would likely be enough evidence," the minutes said.

The summary of deliberations said officials found it too early to consider lowering the 5% overnight policy lending rate, the highest since 2001. Upside inflation risks remain, including another surge in the housing market, while the chance of economic weakness from a sudden spike in unemployment, has faded according to the discussion notes. (See: MNI INTERVIEW: BOC's Macklem Says Can Move Rapidly If Needed)

“If inflation proves more persistent than expected, monetary policy would likely need to remain restrictive for longer,” the minutes showed. “There is also the risk that monetary policy could have a greater-than-expected impact on consumer spending… In this scenario, monetary policy may need to ease earlier and more quickly than anticipated. Members agreed this risk remained but was less likely, given recent GDP data.”

Most investors see a hold at the next meeting in April and the first rate cut in June, forecasts that have been recently pushed back amid stronger-than-expected growth and inflation. (See: MNI INTERVIEW: BOC Has Case For No Cut This Year: Dal's McNeil)

While some investors have suggested that narrow inflation pressure from housing could lead the Bank to turn dovish, officials underlined that price pressures remain much more broadly based and trend inflation must be brought down.

The talks also suggested less focus on the Bank's two core inflation measures in favor of a wider array of data including wages and corporate pricing strength. "Members discussed the challenge of defining underlying inflation, a term the Bank has been using to explain the forces that influence the trend of CPI inflation. They agreed that underlying inflation is not measured by a single statistic but rather by a collection of indicators."

The previous summary of deliberations showed officials explored alternate scenarios around potential rate cuts and strongly agreed on the need to avoid any U-turn once they move.