Bank of Canada Shocks With Interest Rate Cut

The Bank of Canada shocked markets today by cutting its key overnight lending rate by a quarter of a percentage point, citing the economic threat posed by plunging oil prices.
"The drop in oil prices is unambiguously negative for the Canadian economy," Bank of Canada governor Stephen Poloz said in a morning news conference. "Canada's income from oil exports will be reduced, and investment and employment in the energy sector are already being cut."
The overnight rate, which moves down to 0.75 per cent, had been at one per cent since September 2010. The cut will result in lower interest rates for variable rate mortgages, lines of credit and other loans that float with prime rates.
Virtually no economists had been predicting a rate cut.
"It is a significant move," TD Bank economist Derek Burleton told CBC News. "It does show the Bank of Canada is worried about the big drop in the price of oil ... and what kind of uncertainty that poses in the next few quarters. I don't think they are panicking but I do think they're concerned about some of the uncertainty the recent slump in the price of oil does create for the economy."
Oil prices have plunged to less than $50 US a barrel from more than $105 US in June last year.
"The large decline in oil prices will weigh significantly on the Canadian economy," the Bank of Canada said in its quarterly monetary policy report.
"Given the speed and magnitude of the oil-price decline, there is substantial uncertainty around the likely level for oil prices and their impact on the economic outlook for Canada."

In the wake of the rate cut, the loonie plunged more than 1.7 cents to 80.82 cents US in early afternoon trading — its lowest level since late April 2009.

continue reading: http://www.cbc.ca/news/business/bank-of-canada-shocks-markets-with-cut-in-key-interest-rate-1.2921370

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