Oh, Canada

21 January 2015 By Daniel Indiviglio

Following last week’s Swiss upset, Canada’s central bank set investors spinning again. The oil price-inspired rate cut from Ottawa seems out of step with stable inflation. But it shows how changing conditions could yet make the Fed’s careful expectations management look futile.

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The Bank of Canada cut its overnight interest rate on Jan. 21 to 0.75 percent from 1 percent. The rate had been the same since September 2010 and markets had not expected a change.

The central bank signaled that the rate cut is meant “to provide insurance” against the risks of financial instability and falling inflation and that the fall in the price of oil helped drive its decision. “The considerably lower profile for oil prices will be unambiguously negative for the Canadian economy in 2015 and subsequent years,” the bank said in its quarterly Monetary Policy Report.

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