The Bank of Canada says it’s trying to not raise interest rates more than it has to, as members of the governing council are mindful of the risks associated with raising rates too much.
The central bank released its summary of deliberations on Wednesday, providing insight into its decision to raise interest rates again earlier this month as the economy runs hotter than expected.
The central bank hiked its key interest rate by a quarter of a percentage point, bringing it to five per cent, the highest it’s been since 2001.
Royce Mendes, an economist with Desjardins, said the deliberations showed the bank is grappling with what to do next. “They had a hard time deciding whether monetary policy was simply taking longer to work its magic on the economy and inflation or whether rates simply weren’t high enough,” he said. “Ultimately, officials decided it was too risky to wait any longer [but] given the uncertainty surrounding the lags in policy, it’s reasonable to assume they are going to be more patient moving forward.”
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Ultimately, they decided that both factors were partly at play, but that the cost of waiting too long to raise rates outweighed the benefits.
The document reiterates that the Bank of Canada plans to take future rate decisions one at a time, basing them on incoming economic data.
Robert Kavcic, an economist with Bank of Montreal, agreed that the bank’s deliberations suggest they are likely done, but there is the potential of more hikes to come.
“Our official call is that the Bank is done raising rates. But the risk remains to the upside as their bias is to tighten further; and rate cuts remain a discussion for next year,” he said.
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