The Bank of Canada isn't sure when it will be able to start cutting interest rates as it continues to contend with inflation that's still too high and broad-based, its summary of deliberations of its Jan. 24 rate decision reveals. 

"While (the governing council) could not rule out further policy rate increases in the event of new inflationary surprises, members agreed that future policy discussions would likely shift to how much longer to maintain the policy rate at five per cent to sustain the disinflationary process," the summary said, echoing prior comments from governor Tiff Macklem.

"They recognized that, based on the information that was available, it was difficult to foresee when it would be appropriate to begin cutting interest rates."

TD director of economics James Orlando said it's clear that the Bank of Canada's next move is a rate cut, but the looming question is when that may be. He said the Bank of Canada's summary is "pretty consistent with their messaging where they're clearly not ready to signal any willingness to cut rates just yet."

The central bank held its key rate at five per cent last month, giving higher interest rates more time to slow the economy and ease price pressures.

Inflation has fallen considerably over the last year and a half — reaching 3.4 per cent in December — but the summary notes prices for many goods and services are still rising at an abnormally fast pace

"Prices for just over half of CPI components were growing at a rate above three per cent, indicating that the drivers of too-high inflation continued to be broad-based," the summary said. 

Economists expect the Bank of Canada will begin cutting interest rates around the middle of the year. Their forecasts suggest economic growth will continue to stall in the coming months and inflation will fall, giving the central bank room to make that move. 

But the Bank of Canada has said time and time again that it wants to see more evidence that inflation is headed sustainably toward its two-per-cent target. Its deliberations noted the governing council is wary of moving too quickly, only to have to reverse course later. 

"While members did not want to make economic conditions more painful than necessary, they were particularly concerned about the persistence of inflation and did not want to lower interest rates prematurely, only to have to raise them again to get inflation back to the two per cent target," the summary said.

A major challenge facing the Bank of Canada is the rapidly rising cost of shelter, which is now the primary driver of above-target inflation. In December, shelter costs were six per cent higher than they were a year ago, significantly outpacing overall inflation.

The summary said the governing council is concerned that a housing market rebound this spring could keep inflation above its target, even as price growth elsewhere in the economy eases. 

"The fact that they're worried about activity in the housing market picking back up again, I think that's sort of a big sign that they don't want that market to get too frothy before or as a result of them cutting rates," Orlando said. 

This report by The Canadian Press was first published Feb. 7, 2024.