Bank of Canada Minutes expect further easing, if with no fixed timetable
The Bank of Canada has released minutes from its July 24 meeting that delivered a second straight 25bps easing. While risks on both sides are discussed, the tone is on balance dovish, with the BoC increasingly confident that ingredients for price stability were in place. There was a clear consensus to lower the policy rate further if inflation continued to ease in line with the projection.
Countervailing forces on inflation meant that progress was likely to be bumpy and that meant there should be no set path for the policy rate, with decisions to be taken one meeting at a time. Restrictive policy was still seen as justified, with the rate cut decided at the meeting simply making policy less restrictive. However while inflation is still above the 2% target, it is now in the 1-3% control range, and the BoC agreed that they needed to clearly communicate that they would be weighing factors that could pull inflation below target as well as those that could hold it above target.
On the downside the BoC noted that the economy had been growing by less than population increasing excess supply and there was risk that consumer spending could be weaker than expected in 2025 and 2026 due to households renewing mortgages at higher rates. The emergence of labor market slack was also noted. Upside risks came from strength in shelter services due to housing market imbalances and other services due to wage growth running well ahead of productivity.
On the economy the BoC expected Q2 GDP to lag population growth but GDP was seen picking up in the second half of the year, but given excess supply room was seen for growth to pick up without renewing inflationary pressure. Slack in the labor market was expected to persist but in the housing market supply was expected to remain below demand for some time. Still, despite the persistence of some hawkish concerns, the Bank of Canada is clearly moving in a more dovish direction. Data will have to be surprisingly strong to prevent a further easing when the BoC next meet on September 4.