OTTAWA—Senior Bank of Canada officials agreed on a half-point rate cut to help a weak economy, although some policymakers worried this could fuel expectations for a series of outsize reductions and “very accommodative” monetary policy, according to minutes released Tuesday by the central bank.
Overall, central bank policymakers believed a half-point cut last month was appropriate to address softness in the labor market and the buildup of spare capacity, or slack, sloshing around in the economy.
The minutes cover deliberations among the Bank of Canada’s governing-council members starting Oct. 15, and leading up to the Oct. 23 decision to cut its target for the overnight rate to 3.75% from 4.25%. This marked the fourth consecutive cut to borrowing costs, amounting to 1.25 percentage points of easing—the most so far this year by a Group of Seven central bank.
Bank of Canada Gov. Tiff Macklem told lawmakers last week that he expected the central bank to deliver further cuts in interest rates to revive an economy he called “soft.”
The minutes indicate there was a “strong consensus” among the six-member governing council to deliver a half-point cut, but not without some trepidation.
“Some members expressed concern that it might be interpreted as a sign of economic trouble, leading to expectations of further moves of this size or to assumptions that the policy interest rate would need to become very accommodative in the future,” according to the minutes.
The minutes suggest senior officials agreed to convey that an outsize rate cut was appropriate given data showing weakness in the labor market, and confidence at the central bank that inflationary pressures would continue to ease.
Officials “would continue to proceed with decisions one meeting at a time, guided by incoming data,” according to the minutes. Some economists, citing disinflation and tepid consumer demand, have predicted the Bank of Canada would deliver another half-point rate cut in its last decision of the year, on Dec. 11.
The central bank sets rate policy to achieve and maintain 2% inflation. Inflation in September dropped below that threshold, to 1.6%. According to the minutes, policymakers agreed they needed to be “equally concerned about inflation coming in either higher or lower than expectations.”
The minutes added senior officials “were more confident that sources of upward pressure, particularly shelter costs, would ease.”