The six-member Council based the decision on clear signs that inflation had stabilized near target levels and emerging concerns about weak economic growth and slowing employment.
According to the summary of the Governing Council’s deliberations at the October 23 rate meeting, “as members considered the benefits of reducing the policy rate by 25 basis points, there was a strong consensus in favor of to a greater extent.
The summary continues: “Members increasingly feel confident that upward pressures on inflation will continue to diminish, so policy need not be as restrictive. »
At the same time, some members fear that choosing an “unusual” move of a deeper 50 basis point cut could send the unintended signal of “economic difficulties”, which could increase market expectations in favor of even more accommodating measures.
However, the Council ultimately judged that a deeper reduction was necessary to stimulate demand and maintain the balance between inflation control and economic momentum. At the heart of this decision was the Bank’s belief that inflation, which had fallen to 1.6% in September – below the Bank’s 2% target – no longer justified such restrictive policies.
The council also views the federal government’s recent decision to lower immigration targets as a downside risk, noting that a slowdown in population growth could dampen housing demand and consumer spending.
They noted: “…the slowdown in the rate of population growth would act as a brake on the growth of total consumption. » As a result, they believed that “consumption growth could slow in the short term, although interest rate reductions would ultimately promote stronger consumption growth.”
Mortgage renewals at higher rates expected to weigh on consumer spending
Another risk to consumer spending is the current wave of mortgage renewals at high rates, the council noted.
According to the Bank’s summary, financial strain on households could lead to a reduction in consumer demand, which would dampen economic momentum as borrowers revise their budgets to meet larger mortgage repayments.
“Many fixed-rate mortgage holders who had recently renewed their loans did so at higher interest rates, which reduced the income available for non-mortgage expenses,” the members noted.
At the same time, they observed that rising interest rates encouraged many Canadians to increase their savings and reduce discretionary spending, further limiting economic growth.
Future pricing decisions will be made “one meeting at a time”
Looking ahead, the Board has made it clear that it is taking things “one meeting at a time.”
The recent drop in rates demonstrates their confidence in controlling inflation, but they leave room for adjustment depending on developments in the economy.
Council members “agreed that given uncertainties about the evolution of the drivers of growth and inflation, they would continue to make decisions meeting after meeting, guided by incoming data,” the summary said.
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Inflation at 2% Bank of Canada Bank of Canada Summary of board deliberations board of directors inflation Mortgage renewals summary of deliberations
Last modification: November 5, 2024