The Bank of Canada is divided on the question of whether it is necessary to increase interest rates further.

The possibility of additional interest rate increases by the Bank of Canada is still under consideration, given the ongoing division within its governing council regarding the necessity of further rate hikes. The central bank recently published a summary of discussions held by council members leading up to the October 25 rate decision, where the key rate was maintained at five percent. The summary indicates a divergence of opinions among council members on whether current interest rates are sufficiently hi

“Some members felt that it was more likely than not that the policy rate would need to increase further to return inflation to target. Others viewed the most likely scenario as one where a five per cent policy rate would be sufficient to get inflation back to the two per cent target, provided it was maintained at that level for long enough,” the summary said.

The Bank of Canada ultimately opted for patience, yet members of the governing council reached a consensus to reassess the need for potential further increases in interest rates.

Despite the economy responding to elevated interest rates, the central bank remains concerned about the pace of inflation decline. In September, Canada’s inflation rate dropped to 3.8 percent, but underlying price pressures have shown limited relief in recent months.

The central bank highlights that core measures of inflation, excluding volatile price movements, have consistently hovered in the 3.5 to 4.0 percent range over the past year.

The governing council of the Bank of Canada attributes the sustained high inflation to various factors, including the rise in shelter prices. The bank acknowledges that its interest rate hikes have contributed to this trend by increasing mortgage interest costs for Canadians.

Nevertheless, the central bank has also acknowledged that other shelter costs remain elevated, primarily due to imbalances in the housing market.

“Higher interest rates would normally exert downward pressure on house prices and other costs that are closely linked to house prices, such as maintenance, taxes and insurance,” the central bank said.

“However, the ongoing structural shortage of housing supply in the economy was sustaining elevated house prices. And the rapid increase in Canada’s population had added to the existing imbalance between demand and supply for housing.”