Arrr! The Bank o' Canada be thinkin' twice afore raisin' rates, fearin' inflation be afoot. The minutes be revealin'!
2023-07-26
Arr, ye scurvy dogs at the Bank of Canada be raisin' the rates by 25 measly basis points, takin' 'em to a 22-year high o' 5.0%! But that ain't all, they also be tweakin' their growth forecast for 2023. Shiver me timbers, what be next?
The Bank of Canada recently discussed the possibility of delaying a hike to its key overnight rate to ensure that progress in dampening inflation did not stall. The decision to raise rates by 25 basis points to a 22-year-high of 5.0% was announced on July 12, along with an upward revision of the growth forecast for 2023. The bank also pushed back its expectations for reaching the 2% inflation target by six months to mid-2025. Governor Tiff Macklem stated that future policy decisions would be based on incoming data and the outlook for inflation.According to the minutes of the meeting, the governing council members debated whether it was appropriate to raise rates in July or wait for more evidence. Ultimately, they decided that the cost of delaying action was greater than the benefit of waiting. They expressed a willingness to raise rates further if inflation pressures did not ease as projected, but they wanted to avoid taking excessive action.
Analysts have mixed opinions on whether the overnight rate will increase further. A survey of market participants conducted by the Bank of Canada indicated that the majority expected rates to remain at 5.00% until the end of 2023, with rate cuts potentially starting in March. However, money markets still see a chance for another rate hike this year.
The governing council acknowledged that excess demand and elevated core inflation were persisting longer than expected. They believed that monetary policy measures might have been delayed due to the unusual circumstances of the pandemic and the recovery. However, they concluded that rates needed to be more restrictive to cool growth and lower inflation.
Overall, the bank's decision reflects the ongoing uncertainty faced by central bankers in understanding the post-pandemic economy. While progress has been made, the governing council members were not convinced that they had done enough to bring inflation down to the desired 2% target. Recent inflation data showed a decline to a 27-month low of 2.8%, bringing it within the bank's control range for the first time since March 2021.