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Bank of Canada Governor Tiff Macklem at a news conference after announcing the central bank's interest rate decision in Ottawa on April 12.BLAIR GABLE/Reuters

Bank of Canada officials considered whether to raise interest rates again on April 12, according to a summary of the deliberations that led to the latest monetary policy decision – a sign that the central bank is leaning more toward rate hikes than cuts as it waits for inflation to fall.

The bank’s governing council ultimately chose to keep the policy rate steady at 4.5 per cent. However, the meeting summary, published Wednesday, suggests there was an active debate about restarting the rate-hike campaign.

The six-person governing council, led by Governor Tiff Macklem, has kept monetary policy on hold since March. After raising interest rates eight consecutive times through 2022 and early 2023, the central bankers want to see how the Canadian economy is responding to higher borrowing costs. They are actively trying to slow spending by households and businesses in an effort to curb inflation.

So far, the economy has proven “a little stronger than expected,” the summary said. GDP growth in early 2023 came in ahead of central bank forecasts. The labour market remains tight, with unemployment near a record low and wages growing quickly.

This resilience was one of the arguments in favour of another rate hike, the summary said. Another was the concern central bankers have that inflation may get stuck above the bank’s 2-per-cent target.

“While governing council was more confident that inflation in Canada would continue to fall in the coming months to around 3 per cent, the second stage of disinflation all the way back to 2 per cent could prove more difficult,” the summary said.

It noted a number of risks that could make inflation stickier, including stronger-than-expected consumer spending, higher global energy prices, labour market tightness and a growth in government spending.

The annual rate of inflation stood at 4.3 per cent in March, down from a four-decade high of 8.1 per cent reached last June.

The governing council’s concerns weren’t enough to push them back into monetary policy tightening – at least for now.

Interest-rate changes work with a six- to eight-quarter lag, as homeowners renew their mortgages at higher rates and businesses pull back on hiring and investment. This suggests that the full impact of last year’s aggressive rate hikes has yet to be felt. And the bank’s governing council clearly wants to wait and see what happens in the coming months.

“The case to maintain the policy rate at 4.5 per cent reflected governing council’s view that headline inflation is coming down quickly in line with the bank’s forecast and that more evidence would be needed to assess whether monetary policy was sufficiently restrictive,” the summary said.

While the debate around further rate hikes remains live, the Bank of Canada appears to be a considerable way away from cutting interest rates.

The governing council discussed the possibility that monetary policy may need to be “restrictive for longer,” the summary said. And they questioned pricing in financial markets that suggests the bank will start cutting interest rates by the end of the year.

“One rationale is that markets continue to price in a probability of a severe economic contraction and a sharp drop in interest rates. Another is that markets expect that policy rates will naturally ease back as inflation softens and supply and demand return to balance,” the summary said.

“Governing council members agreed that while a risk of a sharper slowdown remains, based on their current outlook, cutting rates later this year did not seem to be the most likely scenario.”

Several analysts noted the hawkish tone of the summary of deliberations, although Royce Mendes, head of macro strategy at Desjardins Capital Markets, suggested that the document has to be understood as a “highly curated” version of the actual discussion that took place.

“We still believe that there are enough cracks forming in both the economy and financial system to keep them from raising rates further,” Mr. Mendes wrote in a note to clients.

“We continue to see the next move as a cut around the turn of the year, a bit later than the market is pricing in now. But that’s still much earlier than what the central bank seems to be communicating.”