Bank of Canada Cuts Rates By 50bps to 3.00%, Signals More Easing

The Bank of Canada cut rates, as expected, by 50bps to 3.00 percent. The cut comes on the tails of a 50bp reduction last month and marks the first time rates have been cut so sharply and so quickly since the months following September 11, 2001. With core CPI still below the Bank of Canada's 2.0 percent target, the concurrent press release shows that the Bank remains somewhat dovish as they said "some further monetary stimulus will likely be required to achieve the inflation target over the medium term." Furthermore, growth prospects are looking far less promising for the Canadian economy given projections for a "more protracted slowdown in the US economy" which has "direct consequences for the Canadian economic outlook, with declining exports projected to exert a significant drag on growth in 2008." While restrictive credit conditions and deteriorating sentiment "are expected to moderate business investment and consumer spending," the Bank also notes that "domestic demand is projected to remain strong, supported by firm commodity prices, high employment levels, and the effect of cumulative easing in monetary policy."

While the Bank of Canada's monetary policy bias remains in favor of additional rate cuts, we are not likely to continue seeing such aggressive reductions and instead, the Bank may go back to enacting milder 25bp cuts. However, if signs emerge that price pressures are building in the Canadian economy, the Bank may opt to pause and leave rates steady.

DailyFX

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