OTTAWA – Further interest rate rises from the Bank of Canada are very much still on the table as its governing council remains split on whether rates may need to rise further.
Recently the Central Bank released its summary of deliberations detailing the discussions governing council members had in the lead-up to its Oct. 25 rate decision, which kept its key rate on hold at five per cent.
Regarding the matter of whether interest rates are high enough, the summary suggests members of the governing council are split.
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Tiff Macklem, Governor of Bank of Canada reads his notes as he waits to appear in Ottawa at the Senate Committee on Banking, Commerce and the Economy.
According to the summery, some members realized 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 enough to get inflation back to the two per cent target, provided it was maintained at that level for long enough.
The Bank of Canada finally decided to exert patience, but members of the governing council agreed to revisit whether rates need to increase further.
The central bank remains concerned that inflation is not falling fast enough, even though the economy is responding to higher interest rates.
In September Canada’s inflation rate fell to 3.8 percent but underlying price pressures have not reduced by much in recent months.
The Central Bank notes that over the last few years, Core measures of inflation, which strip out volatile price movements, have remained the range between 3.5 to 4.0 per cent.
The Bank of Canada’s governing council attributed the persistence of high inflation to many factors, including high shelter prices.
The central bank’s interest rate rise is partly to blame for that, given they have fed into higher mortgage interest costs for Canadians.
However, recently the central bank has noted that other shelter costs remain high, mainly because of the imbalances in the housing market.
The Central Bank said, generally higher interest rates would exert downward pressure on house prices and other costs that are closely connected with house prices, such as taxes, insurance and maintenance.
Though the ongoing structural shortage of housing supply in the economy was sustaining elevated house prices but the rapid increase in Canada’s population had added to the existing imbalance between demand and supply for housing.
