MNI: BOC Wants To Avoid U-Turn After Any Rate Cut: Minutes

Bank of Canada officials explored alternate scenarios around potential interest-rate cuts at their meeting last month and strongly agreed on the need to avoid any U-turn once they move, according to minutes of the Jan. 24 decision to hold rates at their highest since 2001.

Officials discussed both a scenario where a weaker economy requires rates to fall "earlier and more quickly than anticipated" and one with persistent inflation where "monetary policy would need to remain restrictive for longer." The summary of discussions released Wednesday didn't include any timeframe around those alternatives. Most investors see a rate cut around the middle of this year, though forecasts have recently been pushed back amid stronger-than-expected growth and inflation.

"While members did not want to make economic conditions more painful than necessary, they were particularly concerned about the persistence of inflation and did not want to lower interest rates prematurely, only to have to raise them again to get inflation back to the 2% target," the minutes showed. (See: MNI INTERVIEW: Last Thing BOC Wants Is Cut And U-Turn- Stillo)

While showing more satisfaction that their 10 rate hikes were opening up slack in the economy needed to cool prices, officials also noted that household spending should pick up later this year as the drag of higher rates fades. Governor Tiff Macklem has said it's premature to really look at a rate cut until it's clear price stability is being restored, but he doesn't have to wait until inflation is all the way back to target to move.