The Bank of Canada is now less concerned about home prices spiking as it lowers its benchmark interest rate, minutes from the governing council’s latest meeting show.

Deliberations from the July 24 meeting, where the central bank delivered its second consecutive quarter-point rate cut, were published on Wednesday.

The Bank of Canada’s top monetary policymakers discussed risks to the inflation outlook and the broader Canadian economy, the minutes show, including the pace of immigration, wage pressures and the housing market.

Previous deliberations have shown the governing council was keeping a close eye on housing activity as it edged towards a lower policy rate, fearing sudden cuts to borrowing costs could drive home prices higher and risk progress made to date in taming inflation.

But the latest release shows such worries have ebbed.

The governing council did acknowledge that declining mortgage rates or higher-than-expected population growth could drive demand higher in the housing market, and that delays in building homes could limit the growth of supply.

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“Nonetheless, concerns had decreased that pent-up demand would lead to a sudden rise in house prices with cuts in the policy interest rate,” the deliberations read.

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Reaction in the housing market to the first two interest rate cuts of the cycle in June and July has been somewhat muted with a small uptick in sales reported in some markets. The deliberations show that resale activity has been “slower than expected” from the central bank’s point of view.

Despite hopes for residential building investment to “increase substantially” next year, the governing council suggested in the minutes that “the imbalance between demand and supply was likely to persist for sometime,” particularly in urban rental markets where newcomers tend to settle.

The governors also noted that if housing affordability challenges continue to box renters out of the ownership market, Canadians might face more “upward pressure on rents.”

The deliberations include multiple references to the pace of immigration. The central bank is expecting the overall share of non-permanent residents in the population to grow in the short-term despite government efforts to stem the inflow of temporary workers and students in the years ahead, adding to “uncertainty” in the economic outlook.

The governing council also spent “considerable time” discussing the labour market, according to the deliberations. “Slack” has emerged in the jobs market with the unemployment rate rising to 6.4 per cent, a trend the central bank expects will “persist” as the labour force grows faster than employment in the near term.

Monetary policymakers will get a fresh look at July jobs figures from Statistics Canada on Friday.

Fears that still-hot wage growth would risk inflation progress, particularly on the services side of prices, were still present in the deliberations. But the governing council restated its confidence that wages would cool amid the slackening labour market.

As for borrowing costs, the governing council indicated there was a “clear consensus” that if inflation continued current trends back to the two per cent target, “it would be appropriate to lower the policy rate further.”

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Market watchers have noted a shift in the Bank of Canada’s tone since the July 24 meeting, focused increasingly on fears that inflation could fall too far past two per cent. Those worries are prominent in the governing council’s deliberations as well.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said in a note to clients on Wednesday that the deliberations confirm the Bank of Canada’s shifting focus on threats to economic growth, rather than risks that inflation will remain elevated.

Concerns that the labour market will continue to deteriorate and a growing need to stimulate growth rather than suppress it means that “the Bank of Canada remains on a clear path to further rate cuts,” Reitzes wrote.

BMO and CIBC are both calling for another 75 basis points of rate cuts in 2024, or a quarter-point cut at every remaining meeting this year.

The Bank of Canada’s next interest rate decision is set for September 4.

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