OTTAWA, May 13 (Reuters) - The Bank of Canada's Governing Council felt it could afford to be patient and hold rates ahead of its April 29 announcement, while acknowledging the situation might change quickly, according to minutes released on Wednesday. The BoC kept its key policy rate unchanged at 2.25% as headline inflation hovered around its 2% target and economic growth remained subdued. The six-member rate-setting council concluded that despite higher energy costs, inflation had largely stayed muted and rates were slightly stimulative, allowing it to look through the initial inflation shock. "Members agreed that they had scope to be patient for now, but the situation could change quickly, and monetary policy might need to respond to guard against the risk that inflation broadens and becomes more persistent," the minutes said. The Iran war has driven up oil prices and gasoline costs, fuelling fears the knock-on effects could soon spill over into food prices, hurting consumer demand and economic growth. The conflict comes as the Canadian economy is already grappling with a raft of U.S. tariffs and uncertainty over the future of the United States-Mexico-Canada free trade agreement. "Members agreed that the appropriate monetary policy response depended importantly on two factors: the economic conditions when the shock occurred and the persistence of the shock," the summary of deliberations said. The bank would need to hike rates if higher crude prices and supply bottlenecks created broader inflationary pressures. "The degree of tightening would depend on other related developments including investment in the energy sector and the response of the exchange rate," it said. Governor Tiff Macklem said during the policy announcement that the central bank could deliver consecutive rate hikes if needed. But the actual outcome of the monetary policy would depend on the combination of the U.S. trade policy and the knock on effects of the Iran war, the minutes said.
(Reporting by Reuters)
By Promit Mukherjee and David Ljunggren
