The latest meeting minutes from the central bank indicate a decreased level of concern regarding the spike in home prices as the benchmark interest rate is lowered. The discussions from the meeting highlighted various risks to the inflation outlook and the Canadian economy, including immigration rates, wage pressures, and the housing market. Previous meetings had shown apprehension about housing activity rising with a lower policy rate, but the recent release suggests a reduction in these worries.
The governing council acknowledged the potential impact of declining mortgage rates and higher population growth on increasing demand in the housing market, along with delays in home construction limiting supply growth. Market reactions to recent interest rate cuts have been moderate, with slower-than-expected resale activity noted by the central bank.
The minutes also touched on the challenges of housing affordability, especially for renters, which could result in upward pressure on rents. The discussions emphasized the persistent imbalance between demand and supply, particularly in urban rental markets where newcomers typically settle.
Additionally, the deliberations highlighted the central bank’s focus on the pace of immigration, expecting growth in non-permanent residents despite efforts to regulate the inflow of temporary workers and students. The meetings also addressed concerns about slack in the labor market and the potential for continued unemployment rate increases.
Furthermore, there was reiteration of worries about inflation falling too far below the two percent target, although the central bank expressed confidence in cooling wages amidst the weakening labor market. The consensus among policymakers indicated a willingness to lower the policy rate further if inflation trends continue below target.
Overall, the Bank of Canada’s focus seems to have shifted towards stimulating economic growth rather than controlling inflation, signaling a potential path for further rate cuts in the future. Analysts from BMO and CIBC are predicting additional rate cuts in the coming year, with the next interest rate decision scheduled for September 4th.
