BoC Meeting minutes: Decision to cut rates by 50 bps was a close call
According to the Bank of Canada's (BoC) minutes from the December 2024 meeting that was released Tuesday, the decision to cut rates by 50 basis points (bps) on December 11 was a close call, with some members of the governing council suggesting a smaller reduction.
Key quotes
The Bank of Canada's decision to cut rates by 50 bps on December 11 was a close call - minutes of the Governing Council meeting.
Members discussed arguments both for cutting by 25 bps and 50 bps.
Those in favor of a 50 bps cut acknowledged that not all data called for such a reduction on December 11.
This group said it seemed unlikely that a cut of 50 bps would take rates lower than they needed to go over the next couple of meetings.
Those in favor of a 25 bps cut suggested policy could be patient while the full effects of past cuts became clearer.
The decision to cut by 50 bps reflected a weaker-than-expected growth outlook and the fact that monetary policy no longer needed to be clearly restrictive.
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.
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.
Market reaction to the BoC Minutes
At the time of writing, USD/CAD was up 0.02% on the day at 1.4373.
Bank of Canada FAQs
The Bank of Canada (BoC), based in Ottawa, is the institution that sets interest rates and manages monetary policy for Canada. It does so at eight scheduled meetings a year and ad hoc emergency meetings that are held as required. The BoC primary mandate is to maintain price stability, which means keeping inflation at between 1-3%. Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Canadian Dollar (CAD) and vice versa. Other tools used include quantitative easing and tightening.
In extreme situations, the Bank of Canada can enact a policy tool called Quantitative Easing. QE is the process by which the BoC prints Canadian Dollars for the purpose of buying assets – usually government or corporate bonds – from financial institutions. QE usually results in a weaker CAD. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The Bank of Canada used the measure during the Great Financial Crisis of 2009-11 when credit froze after banks lost faith in each other’s ability to repay debts.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Bank of Canada purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the BoC stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Canadian Dollar.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
