Minutes of BOC Monetary Policy Meeting: Guard Against Downside Risks to the Economy

Remarks of Officials

Central Bank

Summary:

The minutes of the Bank of Canada's policy meeting released on Wednesday reflected that members agreed that with broad inflationary pressures continuing to ease, it was appropriate to reduce the policy rate further. With inflation approaching the target, they needed to increasingly guard against the downside risks to inflation stemming from weakness in economic activity.

On September 18, the Bank of Canada (BOC) released the minutes of its monetary policy meeting. The main points are as follows:

The economy had grown by 2.1% in the second quarter, which was stronger than anticipated in the July Report. This strength was due mainly to an increase in spending by governments as well as a boost to business investment. Overall consumption growth had slowed to 0.6%, and per capita consumption had contracted by 2.4% while population growth remained strong.

The labor market had continued to weaken, with labor force growth outpacing employment growth. Layoffs remained muted, but unemployment had risen among newcomers to Canada and youth as new workers were having more difficulty finding a job. Wage growth remained elevated when compared with productivity growth. Members expected wage growth to ease in the months ahead given the slack in the labor market.

Consumer price index (CPI) inflation had eased further in July to 2.5%, in line with the Bank's forecast. Core inflation measures continued to ease as well. Shelter price inflation remained the largest contributor to overall inflation. Members noted that this component showed early signs of easing, with growth in mortgage interest costs coming down and rent inflation edging lower from its recent peak. Inflation in prices for services excluding shelter had also eased slightly in July, a sign of the diminished risk that these price pressures would persist.

Members discussed the balance of risks to the outlook for inflation. Some members took the view that the risks were balanced, with strength in shelter and services price inflation offsetting the downward pressure from excess supply. Some had become more concerned with the downside risks to inflation, particularly if the economy and labor market weakened further.

Overall, members agreed that with broad inflationary pressures continuing to ease, it was appropriate to reduce the policy rate further. They decided to cut the policy rate by another 25 basis points to 4¼%. If inflation continued to ease as expected, it was reasonable to expect that the policy rate would decline further.

Minutes of BOC Policy Meeting

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Minutes of BOC Monetary Policy Meeting: Guard Against Downside Risks to the Economy

Minutes of BOC Policy Meeting

Risk Disclosure