Bank of Canada delivers shock rate cut as ECB gears up for QE
By Randall Palmer and John O'Donnell
OTTAWA/FRANKFURT (Reuters) - The Bank of Canada joined the list of "unpredictable" central banks on Wednesday with a shock quarter point rate cut as the European Central Bank prepared a 600 billion euro ($695 billion) bond-buying program aimed at lifting Europe out of its economic doldrums.
The Canadian move came in response to a sharp drop in oil prices that hit the commodity-dependent economy, expected to grow by just 1.5 percent in the first half of this year compared with the central bank's previous forecast of 2.4 percent.
The surprise move follows Denmark's rate cut this week and a shock Jan. 15 decision by the Swiss National Bank to drop its cap on the Swiss currency against the euro and cut its rates further, likely in anticipation of the ECB's money printing plan, which appears set to weaken the euro.
Rising deflationary risks also seem to be registering at the Bank of England where two policymakers on Wednesday ditched their long-standing calls for an end to record-low interest rates.
Brazil's was the standout central bank, with its "Copom" monetary committee raising rates as expected for the second straight meeting by 50 basis points to 12.25 percent, its highest level since August 2011, in an attempt to contain inflation and restore some investor confidence.
The U.S. Federal Reserve, which appears committed to a rate rise this year, meets next Tuesday and Wednesday, although it is not expected to act until June of this year, at the earliest.
The global economy outside of the United States has turned distinctly gloomy, with Japan and Europe struggling to gain traction. A slump in oil prices to below $50 a barrel has added to deflationary concerns and to worries that the global economy is struggling with a widespread deficit in growth.
"We think in light of recent developments, it is clear that QE is coming, and knowing (ECB President Mario) Draghi's knowledge of markets, it is unlikely he will disappoint – either by holding off on QE or announcing a smaller-sized program," Vasileios Gkionakis, head of global foreign exchange strategy at UniCredit Bank in London said in a report. Continued...