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Tiff Macklem and Carolyn Rogers

Bank of Canada’s Governing Council divided over timing of future rate cuts

While conditions for rate cuts are expected to materialize over the course of the year, the Bank of Canada itself appears divided over when exactly these conditions will be met.

That’s according to the latest summary of deliberations from the Bank of Canada’s March 6 monetary policy meeting, where its six-member Governing Council unanimously voted to leave the benchmark rate unchanged at 5.00%.

They agreed that if the economy performs in line with expectations, “the conditions for rate cuts should materialize over the course of this year.”

However, the summary of deliberations revealed a “diversity of views” among members as to “when there would likely be enough evidence that these conditions were in place, and how to weight the risks to the outlook.”

As the Bank has communicated repeatedly, members agreed that they need to see a “further and sustained” easing in underlying inflation towards its neutral 2% target. On top of that, they said they would also be considering the balance of supply and demand in the economy, corporate pricing behaviour, wage growth and inflation expectations.

The Bank’s latest data show early signs that wage growth is moderating, and that corporate pricing bahaviour is “gradually normalizing.”

Inflation is easing, but upside risks remain

The members said a key risk to their outlook is that inflation remains “more persistent than expected,” adding that the Bank’s preferred measures of core inflation had “yet to show much downward momentum.”

However, these discussions were prior to February inflation data that was released Tuesday, in which both headline and core inflation measures slowed more than expected.

The data from Statistics Canada showed headline inflation eased to 2.8% from 2.9% in January. The Bank’s preferred measures of core inflation, which strip out food and energy prices, also came in lower than expected, with CPI-median easing to 3.1% (from 3.3% in January) and CPI-trim falling to 3.2% from 3.4%.

Given slowdown in inflation and data pointing to a quickly slowing economy, markets and economists largely expect the Bank of Canada can begin cutting interest rates by its June meeting.

While the Bank’s Governing Council said the current level of monetary policy is “doing its work” to slow economic growth and ease price pressures, they warned that future progress on inflation is likely to be “gradual and uneven.”