BoC expects to cut rates this year, governing council split on timing: deliberations

OTTAWA — The Bank of Canada expects it will be able to begin cutting interest rates sometime this year, but officials are split on timing.

That’s according to the central bank’s summary of deliberations detailing the discussions governing council members had in the lead-up to the March 6 interest rate announcement.

The summary says governing council members agreed that if the economy and inflation evolve in line with the Bank of Canada’s projections, the central bank will be able to begin cutting interest rates sometime this year.

And while members agreed on the conditions the Bank of Canada needs to start lowering its policy rate — they want to see further and sustained easing in the bundle of indicators they call “underlying inflation” — they had varying views on when those conditions will be met. 

“There was some diversity of views among Governing Council members about when there would likely be enough evidence that these conditions were in place, and how to weight the risks to the outlook,” the summary said. 

The Bank of Canada opted to continue holding its interest rate at five per cent earlier this month and brushed off questions on the timing of rate cuts.

Governor Tiff Macklem said the central bank did not want to move too quickly, only to have to reverse course later. 

Recent data show Canada’s inflation rate came in lower than expected for a second consecutive month, reaching 2.8 per cent in February.

As inflation continues to ease and the economy slows, forecasters continue to expect the Bank of Canada to begin lowering its policy rate around the middle of the year. 

However, the central bank is still concerned about stickiness in inflation, particularly as shelter costs continue to skyrocket. 

“If the housing sector rebounds in the spring, shelter price inflation could be pushed up, delaying the return of CPI inflation to the two per cent target. If inflation proves more persistent than expected, monetary policy would likely need to remain restrictive for longer,” the summary said. 

This report by The Canadian Press was first published March 20, 2024. 

Nojoud Al Mallees, The Canadian Press