MNI: BOC Minutes Show Caution Over Further Rate Cut

Bank of Canada officials at their last meeting expressed caution about cutting interest rates further given elevated risks around inflation and growth during the U.S. trade war.

"Members agreed that they would need to proceed carefully in adjusting the stance of monetary policy," according to the Summary of Deliberations for the Sept. 17 meet published Wednesday. "Members stressed that while the upside (inflation) risks had diminished, they had not gone away"

Governing Council "would continue to look over a shorter horizon than usual and take a risk management approach," the report showed. "They recognized there were risks on both sides and agreed they would be ready to respond to new information."

The Bank cut the policy rate 25bps to 2.5% after three meetings on hold and dropped an earlier phrase about the potential to lower rates. The cutting cycle began with an earlier string of reductions from 5%. (MNI INTERVIEW: Canada Needs More Than One Rate Cut-Ex Dep Lane)

RISKS

While diminished upside inflation risks justified a cut alongside slower growth, trend inflation remains around 2.5% and above the Bank's 2% target and further pressures can't be ruled out, the minutes showed. The path of potential growth has also been clouded by slowing immigration and population growth, cutting into stronger than expected consumer spending early this year, the Bank said. 

Officials "also expected weak business investment to continue to weigh on economic growth in the second half of the year" the summary said. "Members were concerned that continued tariffs and ongoing uncertainty about US trade policy could lead to further labour market weakness across the economy."