21 Jan 2015
Bank of Canada cuts overnight rate to 0.75 percent
FXStreet (London) - The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 0.75 per cent. The Bank Rate is correspondingly 1 percent and the deposit rate is 0.5 percent. This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada.
With inflation remaining close to the 2 percent target in recent quarters, the BoC said that core inflation has been temporarily boosted by sector-specific factors and the pass-through effects of the lower Canadian dollar, which are offsetting disinflationary pressures from slack in the economy and competition in the retail sector. Total CPI inflation is starting to reflect the fall in oil prices.
In line with other central banks, the BoC said that oil’s sharp decline in the past six months is expected to boost global economic growth, especially in the United States, while widening the divergences among economies. Persistent headwinds from deleveraging and lingering uncertainty will influence the extent to which some oil-importing countries benefit from lower prices. The Bank’s base-case projection assumes oil prices around USD60 per barrel. Prices are currently lower but our belief is that prices over the medium term are likely to be higher.
With inflation remaining close to the 2 percent target in recent quarters, the BoC said that core inflation has been temporarily boosted by sector-specific factors and the pass-through effects of the lower Canadian dollar, which are offsetting disinflationary pressures from slack in the economy and competition in the retail sector. Total CPI inflation is starting to reflect the fall in oil prices.
In line with other central banks, the BoC said that oil’s sharp decline in the past six months is expected to boost global economic growth, especially in the United States, while widening the divergences among economies. Persistent headwinds from deleveraging and lingering uncertainty will influence the extent to which some oil-importing countries benefit from lower prices. The Bank’s base-case projection assumes oil prices around USD60 per barrel. Prices are currently lower but our belief is that prices over the medium term are likely to be higher.