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Canada: BOC to cut rates 50 bps to 1% Tuesday

Tue, Jan 20 2009, 10:24 GMT
by Michael J. Malpede

Easy Forex


The Bank of Canada is expected to cut interest rates 50 basis points to 1% Tuesday. The rate cut would follow 75 basis point rate cut last month. One member of C.D Howe Institute panel of economist’s calls for a 125 bps BOC rate cut as way to shock the credit markets. The consensus of the panel calls for a 50 bps rate cut. Canada's CPI data will be released Tuesday and expected to show a sharp decline reflecting lower energy prices. Canada's core CPI is expected to remain steady. Monday, Canada reported foreign outflows of 4.3 billion in November; the trade was looking for 1 billion inflows. Steady Canadian core CPI and reported a sharp outflow of foreign funds in the month of November make an aggressive BOC rate cut unlikely. CAD traded 4.7% lower last week pressured by a sharp drop in Canada’s trade balance and BOC rate cut speculation. The drop in the trade balance reflects declining demand for Canadian exports. A 50 bps BOC rate cut should be discounted by last weeks CAD decline and CAD may experience a short term rebound. CAD rebound may present a selling opportunity with focus quickly returning to deteriorating global economic outlook. USD/CAD break of 12753 the December 16th high could spark a move to 1.3000.

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