Bank of Canada's future path for interest rates still cloudy

Calgary Herald

5 hours ago

There is a diversity of views among members of the Bank of Canada 's governing council on the best path forward for interest rates as they assess the pressures that trade disruptions could have on inflation, according to a summary of their deliberations released on Tuesday.
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'The weaker the economy and the more downward pressure on inflation, the more there would be a need to lower the policy interest rate further,' the deliberations said. 'However, if the recent firmness in underlying inflation were to persist, it would be more difficult to cut the policy rate.'
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The summary accounts for meetings that ran from May 30 until June 4, when the central bank decided to hold its policy rate at 2.75 per cent for the second time in a row.
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Its decision was made after the Canadian economy beat expectations during the first quarter by growing at an annualized rate of 2.2 per cent. The strong growth was mainly due to a pull forward in exports as businesses attempted to beat United States President Donald Trump's tariffs.
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Members of the governing council expect the second quarter to be weaker as domestic demand remains subdued.
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In April, despite inflation coming in at 1.7 per cent, measures of core inflation came in hotter than expected.
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'Members noted that measures of underlying inflation had come in higher than they expected since the beginning of the year,' the minutes said. 'They agreed they would need to watch developments in inflation across CPI components carefully to gauge how inflationary pressures are evolving.'
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During the rate announcement, Bank of Canada governor Tiff Macklem said higher core inflation can be partly attributed to higher prices for goods, including food, and may reflect the effects of trade being disrupted. But he said it was still too early to see the impact that retaliatory tariffs are having on the consumer price index.
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In April, policymakers noted food prices increased by 3.8 per cent. They also discussed the price increase in services, with some noting it could be a one-time occurrence.
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The council also discussed the survey results from its regional outreach, which showed businesses anticipated increased costs from tariffs and having to rework their supply chains.