Bank of Canada cuts rates in a shocker
Highlights of the Bank of Canada interest rate decision on January 21, 2015:
- Bank of Canada lowers benchmark rate to 0.75%
- No economists were forecasting a rate cut
- Rates were previously at 1.00%
- First rate move in more than 4 years from the Bank of Canada
- “Decision is in response to the recent sharp drop in oil prices”
- There is no clear guidance in the statement
- Economy will return to full capacity around the end of 2016, a little later than was expect in Oct
- Total CPI inflation is projected to be temporarily below the inflation-control range during 2015
- The “oil price shock increases both downside risks to the inflation profile and financial stability risks”.
- Bank’s base-case projection assumes oil prices around US$60 per barrel
- Oil prices are currently lower “but our belief is that prices over the medium term are likely to be higher”
- BOC sees “considerable uncertainty around the outlook”
- Soft-landing in housing still most-likely scenario.
- Full text
This is a big surprise considering that in early December the BOC was clear neutral in regards to what could happen next to rates. It implies real fears at the Bank of Canada about what could be next for the Canadian economy and shocks due to the fall in oil prices.
Looking ahead, there is no indication about whether rates could be cut again.
Poloz, you sly devil
The Canadian dollar is absolutely getting blown out after this shocker.
USDCAD after the Bank of Canada decision
Update: USD/CAD continued to rise, hitting 1.2394 in Poloz’ press conference. He didn’t say anything notable but didn’t remove the risk of more cuts. Here are the highlights.
Also, here are the highlights of the MPR, including some dramatic cuts to growth forecasts in the coming quarters.