Bank of Canada felt uncertainty over rates did not mean inaction, minutes show
TLT•Minutes showed Bank of Canada governors agreed uncertainty about the future path of interest rates did not mean inaction. The bank raised its policy rate by 25 basis points to 2.5% in October, while September inflation reached 3.2%.
1. Careful approach to rates
Ahead of the October 28 decision, Bank of Canada governors agreed uncertainty about the effects of higher energy prices and the U.S. trade war did not mean inaction, but said they would proceed carefully. The bank raised its key policy rate by 25 basis points to 2.5%, its first increase in more than three years.
2. Inflation pressures
Canada’s annual inflation rate reached 3.2% in September, above the bank’s 1%-3% target range, largely because of higher energy and transportation costs. The minutes said core measures were below the 2% target, but costs were building and could eventually show up in consumer prices.
3. Risks to expectations
The council said an energy shock alone could keep inflation around 3% for more than a year, even without costs spreading to other prices. Members also noted that near-term inflation expectations had risen and said a higher policy rate was needed to limit the risk that energy costs would spread to other goods and services.
