The anticipation about interest rate cuts by the Bank of Canada has market watchers doing deep dives into every aspect of its decision making process they can find.
The latest to get intense scrutiny is the “Summary of Deliberations” that the Bank started publishing about a year ago. The April summary shows the Bank’s Governing Council is looking forward to “gradual” rate reductions, but is divided over when they should start.
Some members of the council want to maintain a more cautious approach. They argue that the risks of over tightening are being off-set by the economy’s on-going good performance. They remain concerned that reductions in core inflation have not been sustained long enough to ensure it is under control.
The average of the Bank’s preferred core inflation measures dropped to 3.0% in March, from 3.1% in February. The Consumer Price Index (CPI), or headline inflation, rose to 2.9% from 2.8% for the same period.
Other members argue that progress against inflation has been good and it has returned to more normal levels, especially in the goods and services used to measure CPI.
One factor that may have tipped the balance in favour of holding the Bank’s key overnight rate at 5.0% is housing market activity. Members acknowledged that lowering rates could increase the risk of re-heating the market and boosting shelter costs. Those costs have been a key driver of CPI.