Bank of Canada officials discussed whether to wait until July to cut interest rates, in order to confirm inflation is still on track to reach the central bank’s 2 per cent target.

The bank’s six-member governing council considered waiting for more consumer price data in order to “gain further assurance” that it was time to start loosening monetary policy. Ultimately, they decided to cut the policy rate to 4.75 per cent at their June 5 meeting. A summary of those deliberations was released Wednesday.

Four consecutive months of slowing underlying price pressures was “sufficient progress to warrant a first cut in the policy rate,” according to the minutes-like summary. Policymakers also agreed it was “reasonable” to expect more rate cuts if inflation continued to ease, wording that made it into Bank of Canada Governor Tiff Macklem’s opening remarks to reporters at the June meeting.

Still, policymakers were concerned progress on inflation could stall as it did in the U.S., and agreed that monetary policy easing would “likely be gradual” and depend on incoming data. Officials agreed to emphasize in their communications that they would “take future monetary policy decisions one meeting at a time.”

Governing council also discussed the possibility that Canada’s interest rate path may diverge from that of the U.S., and noted that expectations of different policy outlooks between the two countries could affect the exchange rate. Members agreed that while there were “likely limits” to divergence, “the limits were not close to being reached.”

The deliberations confirm policymakers believe they’ve seen sufficient evidence to begin lowering borrowing costs from restrictive levels. At the same time, their discussions about divergence and potentially waiting until July highlight the bank’s dependence on data — future cuts will require further disinflation momentum.

Other details:

  • Policymakers agreed to continue to watch the evolution of core inflation and focus on the balance between supply and demand in the economy, corporate pricing behavior, inflation expectations and wage growth relative to productivity
  • They discussed risks around the future path for inflation and economic growth, including:
  • The large number of households renewing mortgages at higher rates next year could curb spending and economic activity more than expected
  • Strong wage growth and weak productivity could stoke service inflation
  • They expect wage growth to gradually ease as past labor market tightness and high inflation subsides
  • Cuts to interest rates could lead to an overheated housing market
  • The government’s plan to shrink the temporary immigrant population could affect the forecast for inflation and growth
  • Policymakers plan to watch population dynamics carefully in the coming months
  • Geopolitical tensions and labor disruptions or wildfires in Canada could affect global oil prices, supply chains and inflation
  • They noted that households’ savings rate was higher than expected, with stronger growth in income — either indicating greater cautiousness as consumers wait for economic conditions to improve, or households anticipating higher debt repayments when their mortgages renew
  • They agreed that restrictive policy had worked to restrain activity and slow the rate of inflation