Bank of Canada Officials Split on How Soon Rate Cuts Could Start, Minutes Say

By Paul Vieira

OTTAWA--Senior Bank of Canada officials were divided on how soon the central bank could start cutting interest rates, although they agreed cuts should proceed gradually given the risk of inflation reaccelerating, according to a summary of deliberations leading up to its April 10 policy decision.

Canada's central bank left its main interest rate unchanged at 5%, and afterward Gov. Tiff Macklem said members of the governing council discussed the timing of rate relief, adding that a rate cut in June was a possibility.

The Bank of Canada minutes, released Wednesday, indicated that members were growing confident that inflation would continue to soften based on a series of "favorable" indicators. However, the minutes suggested there was a division among the half-dozen members of the governing council about how soon rate cuts could start.

One camp said the economy was performing well, and stronger-than-expected consumer spending and U.S. growth could keep core inflation--which strips out volatile items like food and energy--from slowing further. "They felt more reassurance was needed," the minutes said.

Others placed more emphasis on the progress to date on inflation, with annual price increases below 3% and core inflation decelerating. "They felt there was a risk of keeping monetary policy more restrictive than needed," the minutes said.

Despite the debate among governing-council members, "they agreed that monetary-policy easing would probably be gradual, given risks to the outlook and the slow path for returning inflation to target."

The Bank of Canada sets interest rates to achieve and maintain 2% inflation. The latest inflation data, released a week after the April 10 decision, showed prices rose 2.9% in March, and measures of core inflation cooled for a third straight month.

A central bank survey of about 30 market participants, released earlier this week, showed the consensus was for Canadian rate cuts to start in June, with easing to continue through late 2025 until the target for the overnight rate reaches 3%.

Overall, senior officials "agreed that inflation was still too high," the minutes said. "While members were still more concerned about the upside risks to the inflation outlook, they viewed both the upside and downside risks as less acute."

Write to Paul Vieira at [e-mail]

(END) Dow Jones Newswires

04-24-24 1344ET