(Bloomberg) -- Bank of Canada officials didn’t actively consider raising interest rates in early March and were “comfortable” that inflation would slow further despite some stronger-than-expected economic data, according to a summary of their discussions. 

Governor Tiff Macklem and four other policymakers saw clear signs that eight consecutive rate hikes were “dampening demand,” and talked about how consistent recent economic developments were with the forecasts in their January monetary policy report.

Canadian government bonds began to rally after the document was released, then rose further after the US Federal Reserve announced a rate increase of 25 basis points, with softer language about future rate increases. Canada’s benchmark two-year yield was at 3.555%, down almost 15 basis points on the day, as of 2:25 p.m. Ottawa time. 

Fed Hikes by 25 Basis Points, Sticks by Rates Outlook

The bank’s governing council was “comfortable with the MPR outlook that inflation will continue to ease this year as monetary policy tightening works its way through the economy and base-year effects pull down 12-month rates of inflation,” according to the summary published Wednesday in Ottawa. 

Macklem and his officials noted that growth in early 2023 “may be a bit stronger” than forecast and that recent increases in employment had been surprisingly robust, with labor-market data showing “the degree of tightness has not substantially changed over the past six months.”

Policymakers also discussed whether a tight jobs market in Canada could lead to more persistent core inflation as it did in the US. But they noted that higher immigration rates and a stronger rebound in labor-force participation in Canada, particularly among women, are helping relieve some of the pressure.

Expectations at the time that the US Federal Reserve would need to raise rates higher for longer were also discussed, as was the continued strength of the US dollar.

Domestically, the bank noted that government spending grew 3.9% in the fourth quarter, more than it had expected.

Despite these developments, policymakers held the policy rate 4.5% — the highest in 15 years — and agreed “it was important to emphasize the conditionality of the pause.”

Holding rates, the bank said, was “an opportunity to learn whether interest rates had increased enough to return inflation to the 2% target.” Officials reiterated their willingness to hike again if needed, but agreed they should be forward-looking and focused on the inflation path. 

Discussions for the March 8 decision took place before the start of the banking-sector turmoil that raised concerns over the global growth outlook. Macklem and his officials will set rates again on April 12.

“All this was before the flare-up in banking sector worries. The resulting downside risks to the outlook suggest that the bank should be that much more comfortable holding policy rates steady assuming conditions don’t deteriorate further,” Benjamin Reitzes, a rates and macro strategist at Bank of Montreal, said in a note to investors.  

(Updates with Fed decision, bond pricing, comment from analyst)

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