Investing.com — Bank of Canada governors disagreed about whether the economic recovery can continue beyond the near term, according to minutes from the July 15 meeting released on Wednesday.
The central bank kept its benchmark overnight rate at 2.25% at the meeting and forecast the economy would expand by 2.5% on an annualized basis in the second quarter following no growth in the first quarter.
“Governing Council was confident about the rebound in GDP growth in the second quarter. But there was a range of views among Governing Council members about the sustainability of the rebound beyond the near term,” the minutes said.
Council members said they would need to watch data closely for signs that growth was expanding as expected.
Governors identified several risks to growth, including businesses failing to adjust to U.S. tariffs, stalled housing markets in Toronto and Vancouver, weakening consumer strength, and flat exports and business investment.
The bank noted limited evidence that higher oil prices were affecting prices of other goods and services. The central bank targets 2% inflation and said it will look through direct effects of elevated oil prices.
“But the longer oil prices remain elevated, the bigger the risk that their inflationary effects broaden. Members agreed to reiterate in their communications that they would not let higher oil prices lead to persistent inflation,” the minutes said.
Some members expressed concern about signs of upward movement in medium-term inflation expectations, though all agreed longer-term expectations remained stable.
The Middle East conflict and U.S. trade policy are creating challenges for the bank’s monetary policy decisions.
“Overall, after a period of weak growth and a spike in inflation, growth was resuming and inflation was easing. Members agreed that this meant the trade-off facing monetary policy had diminished,” the minutes said. “However, uncertainty was still high.”
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