By Promit Mukherjee

NEW YORK (Reuters) – OTTAWA, Feb 7 (Reuters)- Members of the Bank of Canada’s (BoC) governing council were concerned about cutting borrowing costs too soon amid persistent inflation when they decided to keep the key overnight rate on hold on Jan. 24, minutes published on Wednesday showed.

The policy-setting governing council was “particularly concerned about the persistence of inflation and did not want to lower interest rates prematurely,” the minutes said.

The Bank of Canada (BoC) aims to keep inflation at 2% and has increased its key overnight rate 10 times in 17 months to a 22-year high of 5% to tame inflation.

Shelter price inflation, which includes mortgage interest costs, rent and components related to house prices, remained the biggest contributor to above-target inflation, the minutes said.

“Members expressed concern that, going forward, shelter price inflation would continue to keep overall inflation elevated,” the so-called summary of deliberations said.

The governing council was worried that if the housing market rebounded more than expected in the spring of 2024, shelter inflation could keep inflation materially above the target even while other price pressures abated, the minutes said.

Canada’s shelter costs, which account for over a quarter of its CPI basket, rose 6% in December year-on-year even as overall inflation figure came at 3.4%.

Governor Tiff Macklem, while addressing a press conference at the Montreal Council of Foreign Relations on Tuesday, said the BoC expects a modest increase in prices in housing in 2024 and that was built into its forecasts.

The minutes showed that the BoC was also fretting about increase in wages amid zero productivity growth, which could have further inflationary pressures. Wages have been growing between 4% and 5% annually.

“Members expected wage growth to moderate gradually,” the minutes said.

The central bank also sees risk to growth as restrictive monetary policy could impact consumer spending and could case a marked contraction in economic activity, forcing the BoC to ease interest rates “earlier and more quickly than anticipated”.

(This story has been refiled to fix a typo in the headline)