Bank of Canada Meeting Minutes: The June meeting considered waiting until July to cut interest rates, hinting at future gradual easing

On June 5th, the Bank of Canada's monetary policy meeting fired the first shot of interest rate cuts among G7 countries, as scheduled, cutting the rate to 4.75%, with the Governor hinting at further easing.

On Wednesday, June 19th, Eastern Time, the Bank of Canada released the minutes of the June 5th meeting, showing that the decline in core CPI over the past four months provided "sufficient basis for the first rate cut." Officials decided to lower the policy rate to 4.75%. During the meeting, officials also seriously considered whether to postpone the rate cut until July to confirm that the inflation rate is still expected to reach the central bank's 2% target.

Decision-makers at the central bank also unanimously agreed that if inflation continues to slow, it would be "appropriate and reasonable" to further cut interest rates. This statement also appeared in Bank of Canada Governor Tiff Macklem's opening remarks at the June meeting. The six-member Governing Council also mentioned that more inflation data would be awaited to "further ensure" that the timing for monetary policy easing is ripe.

However, they also expressed concerns that inflation progress could stagnate like in the United States, so they agreed that the easing of monetary policy would be gradual and would need to be based on new economic data. They emphasized in their communication that monetary policy decisions would be evaluated at each future meeting.

Furthermore, the Governing Council discussed the possibility that Canada's interest rate path may differ from that of the United States, noting that the divergence in policy outlook between the two countries could affect exchange rates. Despite certain limitations to the differences, the Council believed that these limits had not yet been reached.

Other details include:

• Policymakers agreed to continue monitoring the evolution of core inflation, focusing on the balance of supply and demand in the economy, corporate pricing behavior, inflation expectations, and wage growth relative to productivity.

• They also discussed risks that future inflation and economic growth may face, including: 1) Many households facing mortgage rate resets to higher levels next year, which could unexpectedly suppress consumption and economic activity. 2) Strong wage growth and weak productivity could push up inflation in the service sector. They anticipated that wage growth would gradually slow down as labor market tightness eases and high inflation gradually subsides.

• Rate cuts could lead to overheating in the real estate market.

• The government plans to reduce the number of temporary immigrants, which could impact forecasts for inflation and growth. Decision-makers will closely monitor population trends in the coming months.

• Geopolitical tensions, labor disputes, or wildfire events could impact global oil prices, supply chains, and inflation. They noted that household savings rates were higher than expected, and income growth was strong, which could reflect consumers' cautious attitude while waiting for an improvement in the economic environment, or expectations of higher debt repayments when renewing mortgage contracts.

• They unanimously agreed that the current restrictive policies effectively constrained economic activity and had a dampening effect on the speed of rising inflation