Canada Takes Rates to 50 Year Low

The Bank of Canada took interest rates to a 50 year low of 1.5 percent Tuesday morning and signaled that further monetary stimulus may be needed. Their next rate decision is on January 20th and there is a strong chance that the central bank will take interest rates down to 1 percent. According to the Bank of Canada monetary policy statement, global growth deteriorated significantly, inflation has slowed more than forecast and spending is decreasing on both the corporate and consumer level. The weakness of the Canadian dollar is helping but not enough to make the central bank feel confident that their 250bp of easing year to date will be sufficient to stabilize the economy. The BoC is telling us that more needs to done. The automobile and commodity industries in Canada has been dealt a double blow from slower growth and falling oil prices.

The Canadian dollar has sold off aggressively following the larger interest rate cut of 75bp. USD/CAD is back in the buy zone according to our Bollinger Bands and could hit 1.2875 which would open the door for a retest of 1.30. If the currency pair does not hold above 1.2670, which is the first standard deviation Bollinger band, the attempt to enter the buy zone has failed.

Comments

[puddytat:]

Funny thing is that the prime rate dropped 75 BP but the banks pocketed 25 BP for themselves and dropped some lending rates by only 50 BP.
For my money all this lowering of interest rates does is promote more borrowing and more debt. What the world needs.. ESPECIALLY THE USA ... is alot less debt and living within your means. If growth is the sole goal of monetary policy at any cost than we should get alot more Greenspans into the policy making positions. Oh wait... wasn't he the bone head who got us into this mess in the first place.... wasn't he the one who was knighted by the Queen for all he did for the English private bankers. IE the Fed.
Just because higher interest rates were introduced in the Great Depression doesn't mean that lower interest rates will solve the problem especially since there were no derivatives in the dirty 30s. The world has a humongous problem and piling more debt on debt is not solution.

2008 Dec 10 09:19 AM