The Bank of Canada discussed delaying a hike to its key overnight rate at the last meeting before deciding on a raise to ensure progress in dampening inflation did not stall, according to minutes published on Wednesday.
The bank announced a 25 basis point increase in rates to a 22-year-high of 5.0% on July 12. It also lifted its 2023 growth forecast and pushed back by six months to mid-2025 its expectations for getting inflation to its 2% target.
Governor Tiff Macklem said at the time that the Bank of Canada (BoC) would base future policy decisions - the next one is due Sept 6 - on incoming data and the outlook for inflation.
According to the summary of deliberations, or minutes, the six governing council members discussed "whether it was appropriate to raise the rate in July or wait for more evidence".
The consensus was that "the cost of delaying action was larger than the benefit of waiting," the BoC said.
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The governing council members also agreed they were prepared to raise rates further "if inflation pressures did not ease as projected and progress toward the 2% target stalled. But they did not want to do more than they had to."
Many analysts are beginning to bet that the overnight rate will not go up any further.
On Monday, a BoC survey of market participants showed a median of the participants expect the bank to hold interest rates at 5.00% until the end of 2023, before starting to cut rates in March.
However, money markets still see a chance for another rate hike this year.
The governing council agreed earlier this month that "the data clearly indicated that excess demand and elevated core inflation were proving to be more persistent than expected," the minutes said.
The BoC discussed the idea that the impact of monetary policy could have been delayed by the unusual circumstances of the pandemic and the recovery, but ultimately decided rates needed to be more restrictive to cool growth and lower inflation.
"Central bankers were still struggling to understand the post-pandemic economy," Royce Mendes, head of macro strategy at Desjardins Group, said after the release of the minutes.
"While Governing Council members have been encouraged by the progress to date, they weren't convinced they had done enough to push inflation down to 2%."
Since the rate hike, June inflation numbers came in at a 27-month low of 2.8%, bringing the annual rate to within the BoC's 1% to 3% control range for the first time since March 2021.
