BoC’s governing council split on whether interest rates need to rise further

BoC's governing council split on whether interest rates need to rise further
Bank of Canada Governor Tiff Macklem reads his notes as he waits to appear at the Senate Committee on Banking, Commerce and the Economy, in Ottawa, Wednesday, Nov. 1, 2023.

Further interest rate hikes from the Bank of Canada are very much still on the table as its governing council remains split on whether rates may need to rise further.

The central bank on Wednesday released its summary of deliberations detailing the discussions governing council members had in the lead-up to its Oct. 25 rate decision, which kept its key rate on hold at five per cent.

On the issue of whether interest rates are high enough, the summary suggests members of the governing council are split.

“Some members felt that it was more likely than not that the policy rate would need to increase further to return inflation to target. Others viewed the most likely scenario as one where a five per cent policy rate would be sufficient to get inflation back to the two per cent target, provided it was maintained at that level for long enough,” the summary said.


The Bank of Canada ultimately decided to exert patience, but members of the governing council agreed to revisit whether rates need to rise further.

The central bank remains concerned that inflation is not falling fast enough, despite the economy responding to higher interest rates.

Canada’s inflation rate fell to 3.8 per cent in September, but underlying price pressures have not eased by much in recent months.

Core measures of inflation, which strip out volatile price movements, have remained in the 3.5 to 4.0 per cent range over the last year, the central bank notes.

The Bank of Canada’s governing council attributed the persistence of high inflation to several factors, including rising shelter prices.

The central bank’s interest rate hikes are partly to blame for that, given they have fed into higher mortgage interest costs for Canadians.

However, the central bank has recently noted that other shelter costs remain elevated, largely due to imbalances in the housing market.

“Higher interest rates would normally exert downward pressure on house prices and other costs that are closely linked to house prices, such as maintenance, taxes and insurance,” the central bank said.

“However, the ongoing structural shortage of housing supply in the economy was sustaining elevated house prices. And the rapid increase in Canada’s population had added to the existing imbalance between demand and supply for housing.”

This report by The Canadian Press was first published Nov. 8, 2023.

The Canadian PressThe Canadian Press

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