The Bank of Canada's minutes from its October 28 meeting reveal a cautious approach to monetary policy tightening. The central bank raised interest rates by 25 basis points to 2.50%, citing a stronger inflation outlook than previously anticipated. The benchmark price of oil was noted to be $35 per barrel higher than projected in July, though its impact on consumer prices had been limited so far.
Inflation forecasts were significantly revised upward, with the energy shock expected to keep inflation around 3% for over a year. Downside risks to inflation were seen as diminished, despite trade uncertainties. The bank acknowledged that economic activity had held up well, though fresh US tariffs were expected to dampen growth in the fourth quarter.
A weak employment report released shortly after the meeting showed unemployment rising to a 6-month high of 6.7% from 6.5%. Despite this, the bank agreed that further rate hikes may be necessary, though they emphasized the need to proceed carefully. The decision on whether to move in December or pause before tightening in early 2027 will depend on incoming economic data and energy price developments.
Recent developments suggest a pause in December may be the correct course, with further tightening likely in January when the next Monetary Policy Report is due.