The Bank of Canada’s governing council has shifted its focus to downside risks to inflation and is concerned about the impact mortgage renewals and population growth uncertainty may have on the economy, according to deliberations from its most recent interest rate decision, released on Wednesday.

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“Now, with both total and core inflation within the inflation control range, they agreed that they needed to put more emphasis on the symmetric nature of the inflation target,” reads the summary of deliberations prior to the central bank’s July 25 rate cut. “They also agreed to clearly communicate that they would be weighing the forces that could pull inflation below the target against those that could hold it above the target.”

The council had reached “clear consensus” that further cuts should happen, if inflation remains in line with projections, but the bank would continue to make decisions one meeting at a time.

The governing council remained confident that inflation will return to its two per cent target by 2025, with core inflation remaining below three per cent since January of this year and inflation generally becoming much less broad-based.

Members discussed risks to the bank’s outlook for the economy, with the council acknowledging that unemployment will most likely persist in the near term, as labour force growth continues to outpace the availability of jobs. Unemployment ticked up to 6.4 per cent in June, according to Statistics Canada.

“Recent data suggested positive but subdued GDP growth in the second quarter, largely driven by population growth,” reads the statement. “However, on a per-person basis, GDP appeared to have contracted. The economy clearly remained in excess supply, and there was room for economic growth to pick up without renewing inflationary pressures.”

The council emphasized that uncertainty over population growth is causing uncertainty for its economic outlook.

“Net flows of non-permanent residents (NPRs) had been revised up significantly from the April Report,” reads the statement of deliberations. “NPRs as a share of the population was expected to rise in the near term before government policies to reduce this inflow take effect, but the timing and extent of reductions in net inflows was uncertain.”

NPRs represent 6.8 per cent of the Canadian population compared to the federal government’s previous estimate of 6.2 per cent, according to the bank’s July monetary policy report.

The deliberations also show that members of the governing council remain concerned about the impact mortgage renewals will have on consumer spending in 2025 and 2026.

In its financial stability report released in May, the bank estimates homeowners with a variable rate mortgage with a fixed monthly payment could see their median monthly payment increase by as much as 61 per cent in 2026.

The combination of households renewing mortgages at higher rates and the persistence of a weak labour market could put downward pressure on economic growth.

“Members acknowledged that consumer sentiment had been weak and that survey responses indicated this weakness could continue,” reads the statement. “Spending per person was expected to recover as borrowing rates declined, but many households will still face significant debt-servicing costs.”

• Email: jgowling@postmedia.com

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