- The Bank of Canada surprised markets today by delivering a bigger than expected 75bps rate cut, leaving the overnight rate at 1.50%. This is lower than the previous cyclical low earlier in the decade and matches a low last seen in the post-war era. The decision to lop off more from the overnight rate was largely driven by the deteriorating outlook for the global economy.
- Previously, the Bank had cited three key concerns, all of which have deteriorated. In today’s communiqué, the Bank cited that “the global recession will be broader and deeper than previously anticipated.” Moreover, they characterized financial markets as being “severely strained”. Finally, they also painted the inflation outlook as weaker. However, there is a bit of a silver lining in that they mention that the depreciating Canadian dollar “will continue to provide an important offset to the effects of weaker global demand and lower commodity prices.”
- The statement regarding future rate cuts seems pared back. They say that they “will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2 percent inflation target over the medium term.” But given the admission that the global recession is worse than expected, market thinks that the Bank will be willing to cut further in early 2009.
The Bank of Canada cut rates by 75 bps today to leave the overnight rate at 1.50%
December 9th, 2008 · No Comments
Tags: Canada Canadian Economy
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