Minutes Reveal Bank of Canada’s Rate Cut Was a Narrow Decision
The Bank of Canada’s decision to cut its policy rate by 50 basis points on December 11 was a closely debated move, with some members of the governing council favoring a smaller reduction, according to minutes released on Friday.
The central bank lowered its key rate to 3.25 percent in response to slowing economic growth. Governor Tiff Macklem signaled that future rate cuts would likely be more measured, a departure from earlier indications that sustained easing was necessary to bolster growth.
The minutes revealed that the council’s discussions centered on whether a 50 or 25 basis point cut was more suitable.
“Each member of Governing Council acknowledged that the decision was a close call based on their own assessments of the data and the outlook for growth and inflation,” the minutes stated.
Proponents of a larger cut highlighted concerns over a weaker growth outlook and potential downside risks to inflation, even though some recent data did not fully justify such a significant move.
“However, it seemed unlikely that a cut of 50 basis points would take rates lower than they needed to go over the next couple of meetings,” the minutes noted.
Meanwhile, those advocating for a smaller 25 basis point cut pointed to signs of resilience in consumer spending and housing activity, suggesting the bank could afford to wait and assess the impact of previous rate reductions.
The decision to opt for a more aggressive cut reflected a downgraded growth forecast compared to October and the belief that monetary policy no longer needed to maintain a restrictive stance.
“Governing Council members also discussed the future path for interest rates. There was a range of views on how much further the policy rate would need to be reduced, and over what period that should happen,” the minutes revealed.
The council agreed that further rate cuts were likely to be considered in upcoming meetings but emphasized a data-dependent, meeting-by-meeting approach to decision-making.
