The C.D. Howe Institute’s Monetary Policy Council recommended on Thursday that the Bank of Canada keep its target for the key overnight interest rate at 4.25% when it makes its next announcement on Sept. 6.

The MPC is a panel sponsored by the C.D. Howe Institute to provide an independent assessment of the monetary stance most appropriate for the Bank of Canada as it seeks to achieve its 2% inflation target. William B.P. Robson, the Institute’s president and CEO, chairs the council.

The vote for an unchanged rate was a narrow one: six members called for an unchanged rate, while five called for a 25-basis-point increase in the target to 4.50%, and one called for a 25-basis-point decrease to 4.00%.

The fine balance of the decision reflected the prominence in the discussion of two major, contrasting themes. Members favouring a more aggressive stance by the bank tended to highlight concerns about inflation and inflation expectations running above the 2% target, and the need for rapid action to bring expectations back to 2%.

Members content with an unchanged target, and the one member advocating a decrease, tended to highlight signs that economic activity at home and abroad is slackening, and that the overnight rate is likely already at, or very close to, the level consistent with 2% inflation.

Key points of discussion were: how weakness in the U.S. housing market and the impact of volatile oil prices on consumer confidence would affect demand for Canadian exports; the degree to which Canada’s declining trade surplus reflected strong domestic demand and capacity constraints among exporters as opposed to intense important competition and weak demand for exports; the reliability of monthly numbers showing slowing demand and output; and the relative weights to put on measures of inflation expectations in surveys and the spread between nominal and real-return bonds.

Even though, on balance, the group favoured no move in the target at the September setting, seven members said that an upward adjustment of 25 bps, to 4.50%, would likely be appropriate at the bank’s next interest-rate announcement in October.

The MPC’s next vote will take place on Oct. 12, prior to the Bank of Canada’s interest rate announcement on Oct. 17.