The six-member council based that decision on strong signs that inflation had settled near target levels and emerging concerns over weak economic growth and softening employment.

According to the summary of the Governing Council’s October 23 rate meeting deliberations, “While members considered the merits of cutting the policy rate by 25 basis points, there was strong consensus for taking a larger step.”

The summary continued, “Members felt increasingly confident that the upside pressures on inflation will continue to decline, so policy did not need to be as restrictive.”

At the same time, some members worried that opting for the “unusual” move of a larger 50-bps cut could send the unintended signal of “economic trouble,” potentially raising market expectations for even more accommodative measures.

However, the Council ultimately deemed the larger cut necessary to stimulate demand and maintain balance between inflation control and economic momentum. Central to this decision was the Bank’s confidence that inflation, which had fallen to 1.6% in September—below the Bank’s 2% target—no longer warranted such restrictive policies.

The council also viewed the federal government’s recent decision to lower immigration targets as a downside risk, noting that slower population growth could dampen housing demand and consumer spending.

They noted, “…the slowing rate of population growth would act as a brake on total consumption growth.” As a result, they thought that “consumption growth could slow in the near term, even though reductions in interest rates would ultimately support stronger growth in consumption.”

Mortgage renewals at higher rates expected to weigh on consumer spending

Another risk to consumer spending is the ongoing wave of mortgage renewals at elevated rates, the council noted.

According to the Bank’s summary, the financial strain on households may lead to cutbacks in consumer demand, tempering economic momentum as borrowers shift their budgets to accommodate larger mortgage payments.

“Many fixed-rate mortgage holders who had recently renewed did so at higher interest rates, which has reduced the income available for non-mortgage spending,” the members noted.

At the same time, they observed that higher interest rates have encouraged many Canadians to boost their savings and cut back on discretionary spending, adding further restraint on economic growth.

Future rate decisions to be made “one meeting at a time”

Looking ahead, the Governing Council made it clear they’re taking things “one meeting at a time.”

The recent rate cut signals their confidence in keeping inflation in check, but they’re leaving room to adjust course based on how the economy shapes up.

Council members “agreed that given the uncertainties around how the drivers of growth and inflation will evolve, they would continue to proceed with decisions one meeting at a time, guided by incoming data,” the summary noted.

2% inflation Bank of Canada Bank of Canada Governing Council deliberation summary Editor's pick governing council inflation mortgage renewals summary of deliberations

Last modified: November 6, 2024