Bank of Canada deliberations show some felt rates may need to rise higher

Some members of the Bank of Canada's governing council expressed concerns that the policy rate was not high enough before the central bank held its key rate steady last month.

Some policymakers at the Bank of Canada expressed concerns last month that interest rates weren’t high enough to fully tame inflation, according to newly released deliberations that took place ahead of the last rate decision.

The Bank of Canada opted to hold its benchmark interest rate steady at 5.0 per cent on Oct. 25, marking a second consecutive rate hold in what’s been an aggressive tightening cycle from the central bank.

The deliberations among the Bank of Canada’s governing council that led to that decision were released on Wednesday, offering further insight into what economic factors led monetary policymakers to leave rates unchanged.

Despite forgoing another rate hike, the governing council felt that inflationary risks had increased since its last decision in September, according to the deliberations, which members noted was a source of “considerable concern.”

The Bank of Canada raised its outlook for inflation in the near term last month, citing fears that stickiness in underlying inflation could persist as the labour market was still showing signs of tightness and corporate pricing had not yet normalized.

Governing council also pointed to new risks tied to higher oil prices, global instability and the possibility of future supply chain disruptions. The possibility that the conflict between Israel and Hamas pushes gas prices higher was cited as one such risk in the deliberations.

These factors were among those giving rise to concern within the council that the Bank of Canada’s policy rate is not yet high enough.

“Some members felt that it was more likely than not that the policy rate would need to increase further to return inflation to target,” the deliberations read.