Markets focus on Carney's rate-cut debut

Fri Feb 29, 2008 1:08pm EST
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By Louise Egan

OTTAWA (Reuters) - Markets will get their first clue on just how dovish Canada's new central bank governor is when they see how big a cut he makes to interest rates next Tuesday.

Most market players expect the Bank of Canada to cut its overnight lending rate by 50 basis points, which would be the boldest cut since late 2001, just after the September 11 attacks on the United States.

But the uncertainty of a new hand on the helm means that a lesser quarter-point cut would not be a huge surprise.

"It's a very tough call," said Doug Porter, deputy chief economist at BMO Capital Markets. "We are dealing with basically a new regime and we have no track record here on which to deal."

Mark Carney, who became governor on February 1, has been careful so far to show continuity with his predecessor, David Dodge, when commenting on monetary policy or the Canadian economy.

But after he puts his own imprint on policy with his first rate decision, he could start to reveal more of his own biases, whatever they might be.

Carney, who hails originally from the investment banking world, has indicated that during his term in office the Bank of Canada will focus more on how globalization and financial market trends affect Canada's economy.

That could make him more sensitive to dovish remarks on the U.S. economy by U.S. Federal Reserve Chairman Ben Bernanke following a rate-cutting spree in January.   Continued...