Bank of Canada shocks market with rate cut
The Bank of Canada announced a surprise quarter percentagepoint cut to its key interest rate Wednesday – a move it calls “insurance” against the potentially destructive effects of the oil price collapse.
The reduction in the bank’s overnight rate to 0.75 per cent from 1 per cent – its first move since September, 2010 – comes as a precipitous drop in the price of crude slams Canada’s oil-dependent economy.
The bank has warned that the oil shock will be negative for growth and underlying inflation in Canada. Stephen Poloz, Bank of Canada Governor, is expected to explain the bank's decision later this morning in a conference in Ottawa. Few analysts expected such a move to be made, and believe it is an attempt by Mr. Poloz to shield Canadian households with high debt from an oil induced hit to their jobs and incomes, which can be seen happening in Alberta.
The rate cut is a signal to private-sector banks to lower their ownrateson mortgagesand other loans.
The Canadian economy grew at an estimated rate of 2.4 percent in 2014.