(Bloomberg) — Some Bank of Canada officials worried that a half-percentage point rate cut could be misinterpreted as a sign of economic troubles.
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A summary of October's interest rate decision deliberations shows that some on the bank's board believe that if borrowing costs are lower than usual, investors and Canadians may expect further significant reductions. I was worried that there might be. Policymakers were also concerned about giving the impression that interest rates needed to be “very accommodative.”
“A rate cut of 50 basis points is so unusual that some members may interpret it as a sign of economic problems, leading to expectations for further policy of this magnitude,” the central bank said in a minutes-like document released on Tuesday. “I expressed my concern that this may happen,” he said. .
In the end, officials cut the policy rate by 0.5 percentage point to 3.75%, hinting at further easing. “There was strong consensus to take a larger step forward,” the central bank said, as the board became increasingly confident that upward pressures on inflation would continue to slow and that monetary policy should be more accommodative. Ta.
Officials cited continued weakness in the domestic labor market and the need for stronger economic growth as reasons why the 50 basis point cut was appropriate.
These comments suggest that the central bank is cautious about showing a rush to normalize interest rates and is open to lowering borrowing costs, depending on further data.
There is also little indication of the end point of the central bank's easing cycle. The document says officials discussed how much further interest rates should be cut, but provides few details of the conversation. Officials expressed “uncertainty” about the neutral interest rate, a level of borrowing costs that neither limits nor stimulates economic growth.
Policymakers said the outlook for the economy, when excess supply will be absorbed and the pace at which upward and downward forces on inflation are resolved will influence how much the central bank cuts rates.
The October meeting was held before Prime Minister Justin Trudeau's government announced a major new plan to curb immigration, but officials also cited uncertainty about the pace of slowing population growth. and will impact gross domestic product (GDP) forecasts. Commissioners said the impact on inflation was “not likely to be significant,” echoing comments from Governor Tiff Macklem last month.
