The latest meeting minutes released by the Bank of Canada show that strong consumer spending and a resilient labour market prompted the central bank to surprise markets and raise interest rates earlier in June.
The minutes from the most recent governing council meeting show that Bank of Canada officials debated waiting until July to raise interest rates again, but decided to act sooner after factoring in consumer spending and the jobs market.
Earlier this month, the central bank raised its trendsetting overnight interest rate by a quarter of a percentage point (25-basis points) to 4.75%, taking it up to its highest level since 2001.
The rate hike came after the Bank of Canada declared a pause earlier this year, becoming the first central bank among G7 nations to halt interest rate increases.
However, the Bank of Canada decided to resume its rate hikes as consumer spending has proven to be more resilient than anticipated.
The latest meeting minutes show that the Bank of Canada governing council, which includes Governor Tiff Macklem and various deputy governors, considered signalling that a rate hike was likely in July before ultimately choosing to raise rates by 25-basis points in June.
The decision was prompted by data that showed inflation in Canada rose slightly to 4.4% in April, prompted by an increase in consumer spending.
Consumer spending in Canada rose 5.8% in this year’s first quarter, according to Statistics Canada data. At the same time, the labour market has remained tight.
The Bank of Canada is next scheduled to make a decision regarding interest rates on July 12. Economists currently expect another 25-basis point rate hike.
