Bank of Canada Governors Divided on Economic Rebound

Canada's Bank of Canada governors were divided on the sustainability of the economic rebound in the country, according to minutes released from their July meeting. The bank had left its benchmark overnight rate unchanged at 2.25% after considering a potential interest rate hike to combat rising oil prices. Despite concerns about inflation and the impact of higher oil prices, the bank decided not to raise rates.

The minutes revealed that some governors were worried about signs of upward drift in medium-term inflation expectations, but all agreed that longer-term inflation expectations remained well anchored. The bank noted that it would look through the direct effects of higher oil prices and focus on underlying trends. However, the combination of the Middle East conflict and U.S. trade policy has complicated the bank's decision-making process.

The bank predicted the economy would grow by 2.5% on an annualized basis in the second quarter after grinding to a halt in the first quarter. Members agreed they would need to monitor data closely for signs that growth was broadening as projected. The bank also mentioned several possible reasons for disappointing growth, including fading consumer resilience and exports and business investment remaining flat.