(Bloomberg) -- Some Bank of Canada officials worried cutting interest rates by half a percentage point would be misinterpreted as a sign of trouble for the economy.
Part of the bank’s governing council feared that a larger-than-typical reduction in borrowing costs would lead investors and Canadians to anticipate additional jumbo cuts, according to a summary of deliberations of the October rate decision. Policymakers were also concerned it would create the impression that interest rates would need to become “very accommodative.”
“Since a 50 basis-point cut is unusual, some members expressed concern that it might be interpreted as a sign of economic trouble, leading to expectations of further moves of this size,” the bank said in a minutes-like-summary released Tuesday.
Ultimately, officials cut the policy rate by half a percentage point to 3.75% and signaled more easing to come. There was “strong consensus for taking a larger step,” the bank said, as governing council was increasingly confident upside pressures on inflation would continue to slow and monetary policy should be less restrictive.
Officials cited ongoing weakness in the country’s labor market and the need for stronger economic growth among the reasons a 50 basis-point cut was appropriate.
The comments suggest the central bank is wary of signaling they’re in a hurry to normalize interest rates, and that they’re comfortable with lowering borrowing costs at a pace that depends on incoming data.
There’s also little indication as to an endpoint for the bank’s easing cycle. While the document said officials discussed how much more they thought the policy rate would need to be reduced, few details of that conversation were included. Officials expressed “uncertainty” about the neutral rate — the level of borrowing costs that neither restrict nor stimulate economic growth.
Policymakers said the outlook for the economy, the timing of when excess supply would be absorbed and the pace at which upside and downside inflationary forces resolve would impact how deeply the central bank would cut.
Though the October meeting took place before Prime Minister Justin Trudeau’s government announced a major new plan to slow immigration, officials also flagged uncertainty around the pace at which population growth would wane, saying it would impact gross domestic product forecasts. Members said the impact on inflation “would not be as large,” echoing Governor Tiff Macklem’s comments last month.
Traders in overnight swaps put the odds of another 50 basis-point cut at the bank’s Dec. 11 meeting at about a coin flip, and markets expect officials to lower the benchmark overnight rate to near 3% by March 2025.
(Adds immigration discussion, market expectations in final paragraphs.)
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