Bank of Canada: Remain patient on interest rates but inflation could change rapidly

The Bank of Canada meeting minutes show that the central bank remains patient on interest rates but warns that conditions could change rapidly, and monetary policy may need to respond to prevent inflation from expanding and persistent risks.

The Bank of Canada’s Governing Council decided at its monetary policy meeting on April 29 to keep the key policy rate at 2.25%, citing that overall inflation remains close to the 2% target and economic growth is still weak.

Bank officials hold a series of views on potential review outcomes of the USMCA, the consequences of the Iran war, and the central bank’s policy path, believing that new tariffs could trigger rate cuts, while the Iran war might prompt rate hikes.

Members unanimously agree that appropriate monetary policy responses mainly depend on two factors, including the economic conditions at the time of impact and the duration of the impact. If rising oil prices and supply bottlenecks lead to broader inflationary pressures, the Bank of Canada will need to raise interest rates; the degree of tightening will depend on other related developments, including investments in the energy sector and exchange rate reactions.