BoC considered lowering rate by quarter point, but felt economy warranted a jumbo cut

OTTAWA - The Bank of Canada considered cutting its key interest rate by just a quarter of a percentage point last month, but opted to take a larger step in the face of a weakening economy and falling inflation.

That's according to the central bank's summary of deliberations released Tuesday, which details the governing council's conversations ahead of the Oct. 23 interest rate announcement.

The Bank of Canada ultimately opted for a half-percentage point interest rate cut, bringing its policy rate to 3.75 per cent.

"A number of factors were mentioned to support this decision. Members felt increasingly confident that the upside pressures on inflation will continue to decline, so policy did not need to be as restrictive." the summary said.

"Further, members felt that a larger step was appropriate given the ongoing softness in the labour market and the need for stronger economic growth to absorb excess supply."

Canada's inflation rate had fallen to 1.6 per cent in September, while the unemployment rate was sitting at 6.5 per cent.

The summary says some governing council members were concerned a half-percentage point cut could be interpreted as a sign of economic trouble and therefore stir up expectations for more outsized interest rate reductions.

"Governing council members wanted to convey that a larger step was appropriate given the economic data seen since July. At the same time, they continued to expect the economy to grow and inflation to remain close to target," the summary said.

It also reiterates that the Bank of Canada plans to take interest rate decisions one at a time based on how the economy and inflation evolve.

The central bank's next interest rate announcement is scheduled for Dec. 11.

This report by The Canadian Press was first published Nov. 5, 2024.