A Half-Century Low: BoC Lowers Policy Rate To 1.5%

Bank of Canada announced a rate cut of 75 bp, more than market expectation of 50 bps, bringing the nation's overnight rate target to 1.5%, the lowest level in 50 years. In the accompanying statement, the central bank delivered a very dovish outlook.

1. Canada has deteriorated substantially and global recession has been broader and deeper than previously forecast
2. As Canada has entered recession, previous expectation on inflation is subject to downward revision, therefore, increases the room for further easing
3. Considering future rate cuts, the BoC will "monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2% inflation target over the medium term'. While the wordings are different from what the central bank said in the previous meeting that 'some further monetary stimulus will likely be required', both stated clearly that the BoC has prepared to lower interest rates further in 2009.

As economic condition has worsened in recent months and there's apparently no end for deterioration, we expect the Bank of Canada will continue its monetary easing policy going into 2009. There's possible for the policy to reach 1% by 1Q09.