The Bank of Canada’s decision to cut rates by 50 basis points on Dec 11 was a close call, with some members of the governing council suggesting a smaller reduction, according to minutes released on Friday.
The central bank slashed its key policy rate to 3.25 per cent to help address slower growth. Governor Tiff Macklem indicated further cuts would be more gradual, a shift from previous messaging that continuous easing was needed to support growth.
The minutes said the discussions had focused on whether a 50 basis point or a 25 basis point cut was more appropriate.
“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,” they said.
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Those preferring a bold move were concerned about a weaker growth outlook and downside risks to the inflation forecast, even while acknowledging that not all the recent data pointed to the need for a 50 basis point cut.
“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 said.
Those preferring a 25 basis point cut noted signs of strength in consumption and housing activity, suggesting the bank could be patient while the full effects of past cuts became clearer.
The decision to opt for a larger cut reflected a weaker outlook for growth than forecast in October and the fact monetary policy no longer needed to be clearly restrictive.
“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 said.
“Members agreed that they would likely be considering further reductions in the policy rate at future meetings, and they would take each decision one meeting at a time.”
—Reporting by David Ljunggren, editing by Ismail Shakil
