BoC’s Summary of Deliberations: Policy needed to be more restrictive

• BoC’s Summary of Governing Council deliberations shows members agree the economy remained clearly in excess demand. 
• At the June meeting, the BoC raised interest rates by 25 basis points. 
• USD/CAD trades at the lowest since August 2022. 

The Bank of Canada's Summary of Deliberations from the June 7th meeting when it unexpectedly raised its key interest rate by 25 basis points to 4.75%, showed member view that with the resurgence in household spending growth, the pickup in consumer confidence, and the slowing in disinflationary momentum, monetary policy did not look to be sufficiently restrictive.

The document notes that members expressed doubt about the durability and strength of ongoing disinflation and were concerned that inflation could become stuck materially above the 2% target.

Key takeaways from the Summary of Governing Council deliberations:

“Even after accounting for significant population gains, Governing Council agreed that consumption in Canada was proving stronger and more broad-based than had been expected.”

“Governing Council agreed that the economy remained clearly in excess demand and that the rebalancing of supply and demand was likely to take longer than previously expected.”

“Governing Council members continued to characterize labour market conditions as tight. However, they saw some signs of easing, with employment growth and job vacancies moderating from very high levels.”

“The trends in the core inflation data raised doubts about the strength and durability of ongoing disinflation and increased concerns that inflation could become stuck at a level materially above the 2% target.”

“Members were of the view that with the resurgence in household spending growth, the pickup in consumer confidence, and the slowing in disinflationary momentum, monetary policy did not look to be sufficiently restrictive.”

“At the June decision, enough evidence had accumulated since January to convince them that policy needed to be more restrictive to rebalance supply and demand in the economy and bring inflation all the way back to the 2% target.

Market reaction: 

The USD/CAD is trading under 1.3170, at the lowest level since mid-August. Earlier on Wednesday, Canadian retail sales and the New Housing Price Index surpassed expectations, keeping the Loonie strong.