Bank of Canada Slashes Rates to Lowest Since Bank's Founding in 1934

The Bank of Canada cut rates in line with expectations by 50 basis points to 1.00 percent, which marks the lowest level since the bank was founded in 1934. Meanwhile, the bank's concurrent press release left the door open for further rate cuts as they said that further monetary stimulus may be needed since total CPI is expected to fall negative for two quarters in 2009 due to falling energy costs while Canada's economy is forecasted to contract through mid-2009. However, the bank also said that they would continue monitoring "economic and financial developments" in order to judge how to reach their 2 percent inflation target "over the medium", suggesting they may not be rushing to slash rates again in March if data between now and then signals that inflation pressures are actually holding up. This leaves Friday's Canadian CPI report critical to Canadian dollar price action later this week.

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