Volatility in the global economic environment made the case for a potential increase on April 12
The Bank of Canada contemplated an interest rate hike in its April 12 policy meeting, according to its just released summary of deliberations.
Despite global economic growth remaining “subdued” in the lead-up to the meeting, strong performances as seen in the Eurozone and the US were imparting significant pressure on Canada.
“Governing Council agreed that while restrictive monetary policy is expected to bring inflation down, the persistence of high core and services inflation could make restoring price stability more difficult than anticipated,” the BoC said.
Global oil supply issues at the time also added some volatility, which made the case for a hike.
Still, taking the latest economic data and developments into account, Canadian GDP was judged “to be evolving broadly in line with [our] January projection,” the BoC said. “Headline inflation was coming down, and signs of a rebalancing of supply and demand were becoming evident.”
At the same time, the Canadian economy was proving a little stronger than expected, mainly due to labour market tightness and unexpected robustness in wage growth.
“The current pace of wage growth, if sustained, would not be consistent with getting inflation back to 2% without a substantial increase in productivity (which has been declining in recent quarters),” the BoC said. “Although the labour market was still tight, labour market pressures were beginning to ease. Businesses viewed current labour shortages as less intense than a year ago and were finding it somewhat easier to fill vacancies.”
The decision to keep the rate frozen at 4.5% won out as “headline inflation is coming down quickly in line with the bank’s forecast,” the BoC said. The bank stressed that more evidence would be required to evaluate whether monetary policy is “sufficiently restrictive,” and said that it will continue to review its quantitative tightening program.
“Governing Council members agreed that while a risk of a sharper slowdown remains, based on their current outlook, cutting rates later this year did not seem to be the most likely scenario,” the Bank said.