Senior Bank of Canada officials have come to an agreement that a second consecutive interest-rate increase was necessary in July, as revealed by the minutes of their discussions this month. The officials believed that there was too much risk in delaying the rate hike and waiting for further economic data. According to a summary of the deliberations among members of the Bank of Canada’s governing council, it was concluded that the cost of postponing action outweighed the benefit of waiting.
On July 12, the Bank of Canada decided to raise the benchmark interest rate by a quarter point to 5.0%, marking a 22-year high. The decision was based on the fact that growth had exceeded expectations and there were concerns about the path toward achieving the 2% inflation target. It was noted in the minutes that inflation is projected to remain around 3% for the next year, which raised worries among members about inflation expectations settling above what would be consistent with maintaining price stability.
The governing council members agreed that future rate decisions would heavily rely on incoming data. Just one week after the interest-rate increase, Statistics Canada released data indicating that inflation had slowed to 2.8%, falling within the Bank of Canada’s target range of 1% to 3%.
While senior officials were open to raising the policy rate even further if inflationary pressures persisted and progress toward the 2% target stalled, they were also cautious not to go beyond what was necessary. The willingness to take further action highlights their commitment to managing inflation in line with their objectives.