Bank of Canada prepared to raise rates further if inflation progress stalls – National | Globalnews.ca

The Bank of Canada’s policymakers said they are still prepared to raise their benchmark interest rate even further even as they hiked rates to their highest level in 22 years earlier this month.

The central bank on Wednesday released notes of the deliberations surrounding its interest rate decision on July 12, which saw the policy rate rise 25 basis points to 5.0 per cent.

The Bank of Canada’s July hike followed another quarter-percentage-point increase to the policy rate in June. Many economists at that time predicted a single rate hike would not have been sufficient to satisfy the central bank’s concerns that the decline in inflation could stall.

Debate ensued among observers and economists following the July 12 decision over whether the latest rate hike was really needed as inflation fell into the central bank’s one-to-three per cent target range.

The central bank governing council’s consensus in July was that leaving the key policy rate unchanged at 4.75 per cent would risk stalling the progress it had made in tamping down price increases, which has so far seen annual inflation cool to a low of 2.8 per cent from highs of 8.1 per cent last year.

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“The consensus among members was that the cost of delaying action was larger than the benefit of waiting,” the deliberation notes read.

Inflation could even rise again if the Bank of Canada did not continue to put pressure on the economy through higher rates, the governing council decided.

In preliminary discussions of where to take the key rate next and how to communicate its messaging, policymakers opted to leave future rate decisions up to a meeting-by-meeting basis.

“They agreed they were prepared to raise the policy rate further if inflationary pressures did not ease as projected and progress toward the (two per cent) target stalled,” the deliberations read. “But they did not want to do more than they had to.”

The Bank of Canada’s next interest rate decision is set for Sept. 6.

More to come.

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