2024-04-24 19:02:26
Members of the Board of Directors of the Bank of Canada believe that the time has come to reduce interest rates while others believe that we must wait because there are risks that inflation starts to rise once more.
This division is reflected in the report of the deliberations held at the highest level during the week preceding the April 10 decision to maintain the rate at its level of 5%.
Since last year, the bank has published a summary of its management board meeting which precedes each announcement on the key rate, the last of which took place on April 10. The document released Wednesday says nothing regarding the tone of these discussions, but it indicates for the first time a real divergence of views at the Bank of Canada since the start of its fight once morest inflation.
“Despite their differing views on how much additional assurance was needed to have confidence that inflation was on a sustainable path back to the 2% target, they agreed by consensus to maintain the rate at 5%. “, we can read in the document.
Two subjects dominated the discussions of central bank leaders: the good performance of the American economy and the impact of population growth on inflation in Canada.
Stronger-than-expected growth in the United States economy should continue to support the Canadian economy, the central bank believes.
As for the sharp increase in population, it will have an impact on the cost of housing and on inflation, according to the Bank of Canada. A reduction in rates will accelerate activity in the housing market and fuel inflation, she believes.
“Easing monetary policy might increase the likelihood that this risk materializes, regardless of when the easing cycle begins,” the leaders agreed.
While everyone agrees that inflation is moving in the right direction, those who believe that the time has not yet come to lower rates have won their case. And when the time is right, the declines will be gradual, they predicted.
“Members had differences of opinion as to when conditions would likely be met to justify a reduction in the policy rate,” the document reads. But they agreed that monetary easing would likely be gradual.”
The Bank’s next rate decision is June 5.
Conflicting data
Retail sales data for February indicate that the Canadian economy continues to weaken, strengthening the case for a rate cut in June. After a drop of 0.3% in January, retail sales fell another 0.1% in February, Statistics Canada reported on Wednesday.
Despite population growth, retail sales are down in seven of ten provinces. In Quebec, the decline was 0.1% in March. “Considering the record population growth in the first quarter, this morning’s figures suggest that spending per person was even lower than the overall result suggests,” commented Desjardins economist Florence Jean-Jacob.
Other indicators, including Gross Domestic Product, however, send contradictory signals. The Canadian economy started the year better than expected, jumping 0.6% in January and preliminary data pointing to a 0.4% increase in February. On an annualized basis, economists expect growth of 2.5% to 3% in the first quarter of 2024.
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