The Bank of Canada's governing council held its benchmark rate at 2.25% on September 2 but flagged that inflation is likely to stay elevated in the near term, meeting minutes released Wednesday show. Officials pointed to persistent gasoline prices and trade uncertainty as the main risks clouding the outlook.
The Bank of Canada's governing council held its benchmark interest rate at 2.25% on September 2, even as it judged that inflation was likely to stay elevated in the near term, according to meeting minutes released Wednesday. Governor Tiff Macklem indicated policymakers stood ready to raise borrowing costs multiple times if inflation remained too high, the minutes showed.
Energy prices keep inflation risk elevated
Members cited persistently high gasoline prices and noted that conflict in Iran had raised market expectations for oil prices. The council also saw a higher risk that inflation would spread to non-energy goods and services across the economy.
Members found little evidence that elevated gasoline prices were passing through broadly to other goods and services. However, they concluded that heightened tensions in the Middle East, protracted conflict and damage to refining capacity would keep gasoline and diesel prices high, pushing headline inflation higher for longer than the bank's July forecast.
Trade uncertainty clouds the growth outlook
Growth was broadening and the labor market was improving, members noted, though the economy remained in excess supply. Yet the breakdown in trade negotiations with the United States, new tariffs and threats of further trade measures made growth prospects and the sustainability of the recent recovery more uncertain, the council said.
Members also felt the risks to their July forecasts had become more acute. Meanwhile, traders were pricing in more than 100 basis points of rate hikes over the coming year, InvestingLive reported, even after the bank held rates steady this month.
Members agreed that monetary policy would continue to be guided by the bank's inflation forecast and the risks surrounding it.
Sources: InvestingLive, Investing.com
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