MNI:Debut BOC Minutes Show Debate on Rate Hold Before Jan Hike

The Bank of Canada's first-ever meeting minutes published Wednesday showed Governor Tiff Macklem and his deputies debated keeping interest rates unchanged ahead of the Jan. 25 decision to hike for an eighth consecutive time.

Five Governing Council members agreed on a quarter-point hike to 4.5% and there was "broad agreement" about writing a press release signaling a likely pause on further increases. Officials saw growing evidence past rate increases were slowing inflation and expressed confidence that more of the drag would be felt in 2023, according to the five-page Summary of Deliberations. There was no obvious discussion of a 50bp rate hike to follow up on several out-sized moves last year, and after the Bank signaled in December it could pause. 

"Council wanted to convey that the bar for additional rate increases was now higher," the minutes showed. "Council also wanted to give a clear sense that they would need an accumulation of evidence to determine whether further rate increases would be required to return inflation to the 2% target."

The minutes also showed no discussion of a potential interest-rate cut later this year, as expected by many investors and economists. Macklem told reporters after the rate move that while the Bank is likely done hiking if the economy progresses as expected, inflation still three times his target at 6% means it's far too early to think about a cut. 

"While Governing Council was acutely aware of ongoing uncertainty, they concluded that data since the October Monetary Policy Report had largely reinforced their confidence that inflation would come down through 2023," the minutes said. "All Governing Council members acknowledged they were approaching this decision with a similar view: that the Bank’s monetary policy to date had been forceful and that the full impact would be felt in quarters to come." 

The Bank of Canada decided last year to publish meeting minutes after a transparency review by the IMF, ending its isolation as the only G7 central bank not to do so. While the IMF lauded Canada's overall practices, the Bank declined other IMF recommendations such as providing more details on alternative policy scenarios and shortening the five-year lag on releasing staff projections.

Publishing minutes may also help the bank’s communication with investors, after four of its eight rate moves last year were off the economist consensus, a pattern some have criticized.

The Bank won’t publish vote tallies in a system where by law only the Governor is responsible for setting policy. Governors and deputies say they come to a decision by consensus. In the past, one argument against minutes was that much of the discussion was outlined in other places and minutes could deter provocative debates.