Bank of Canada takes the initiative

Signs that the downturn in the US is now having a marked impact on Canada prompted the Bank of Canada to cut interest rates by a bigger 50 basis points today, to 3.5%. (See Chart.) Moreover, the admission in the accompanying statement that “further monetary stimulus is likely to be required in the near term” is a clear signal that the Bank and its new Governor Mark Carney believes they still has more to do. We now expect rates to fall to as low as 2.5% later this year.