Bank of Canada's December Rate Cut Was a Close Call, Minutes Reveal

The Bank of Canada's decision to cut interest rates by 50 basis points on December 11 was a close call, according to minutes released on Friday and reported by Reuters

The central bank slashed its key policy rate to 3.25% in an effort to address slowing economic growth. Governor Tiff Macklem indicated that future rate cuts would be more gradual, a departure from previous statements suggesting continuous easing was necessary to support growth.

The minutes detail discussions focused on whether a 50 basis point or 25 basis point rate cut was more appropriate.

"Each member of Governing Council acknowledged that the decision was a close call based on their own assessments of the data and the outlook for growth and inflation," the minutes state.

Those favoring a bolder 50 basis point cut expressed concern over a weaker growth outlook and potential downside risks to the inflation forecast, even acknowledging that not all recent data pointed to the need for such a significant rate cut.

"However, it seemed unlikely that a cut of 50 basis points would take rates lower than they needed to go over the next couple of meetings," the minutes note.

Advocates for a more modest 25 basis point cut observed signs of strength in consumption and housing activity, suggesting the bank could afford to be more patient while observing the full impact of previous rate cuts.

The ultimate decision to opt for a larger rate cut reflected a weaker growth outlook than anticipated in October, and the fact that monetary policy no longer required a clearly restrictive stance.

"Governing Council members also discussed the future path for interest rates. There was a range of views on how much further the policy rate would need to be reduced, and over what period that should happen," the minutes reveal.

"Members agreed that they would likely be considering further reductions in the policy rate at future meetings, and they would take each decision one meeting at a time."