The decision by Bank of Canada governing council members to cut the policy rate by 50 basis points in December was a “close call,” according to minutes released by the central bank on Monday.

In early December, policymakers decided to cut the policy rate by 50 basis points for the second consecutive time, bringing the overnight rate down to 3.25 per cent, the top of the central bank’s neutral range.

In the weeks leading up to the decision, the unemployment rate rose to 6.8 per cent in November and third-quarter gross domestic product (GDP) growth came in at one per cent, which was below the Bank of Canada’s expectations. The inflation rate had also remained at or below two per cent since August.

“At the outset, each member of governing council acknowledged that the decision was a close call based on their own assessments of the data and the outlook for growth and inflation,” the summary said. “Data since the last decision were mixed, with more evidence that household spending was picking up but with a weaker outlook for growth overall.”

Members discussed the arguments in favour of a 25-basis-point cut since consumer spending and housing activity were showing signs of strength. They also discussed the merits of a 50-basis-point cut, and the discussion ultimately “coalesced around a consensus decision to cut the policy rate by 50 basis points.”

There were two main factors that supported their decision.

“First, with inflation at two per cent and the economy in excess supply, monetary policy no longer needed to be clearly restrictive,” the summary said. “Second, the outlook for growth was lower than expected in October, and stronger growth was needed to take up the slack in the economy and keep inflation close to the two per cent target.”

Governing council members also discussed the need for the substantial rate cuts to make their way through the economy, and they expected a more gradual approach to monetary policy in the future. They also discussed the neutral interest rate, which they think is “subject to considerable uncertainty.”

The recent depreciation of the Canadian dollar in recent months and its impact on inflation were also considered by governing council members.

“A lower exchange rate makes Canadian exports more attractive in the United States, adding to demand,” the summary said. “It also makes imports more expensive, which could feed through to inflation in consumer goods and higher costs of production inputs.”

Members believe the depreciation of the Canadian dollar has a lot to do with the strength of the U.S. dollar, but they also recognized the divergence of the two countries’ monetary policies “was likely having some impact.”

Looking ahead to the growth outlook next year, members discussed a new source of uncertainty: the possibility of tariffs being enacted by the incoming U.S. administration. However, they think it’s impossible to predict the implications without more information.

Members also discussed the recent changes to immigration targets, which were announced after the central bank’s forecasts in October. Estimates by Statistics Canada have the Canadian population contracting by 0.2 per cent next year.

“They agreed that the planned reductions in immigration will translate into lower GDP growth than the Bank had forecast in the October Report, with lower aggregate consumption and less demand for housing,” the summary said.

• Email: jgowling@postmedia.com

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