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By Randall Palmer and Allison Lampert
MONT-TREMBLANT, Quebec, Feb 19 (Reuters) - A Bank of Canada official said on Thursday there was nothing predetermined about next month’s interest rate decision, even as traders priced in high odds the central bank will ease for the second time this year.
The central bank last month shocked markets by unexpectedly cutting its main policy rate to 0.75 percent from 1 percent, citing a threat to growth from the oil price plunge.
“On March 4 we will come to our next interest rate decision. That decision will be based on a careful examination of how the economy, and the risks, are evolving,” Deputy Governor Agathe Cote said in a speech.
Driving home the point, she said in a question-and-answer session afterwards: “The only thing I want to reiterate is there is no predetermined path for the interest rate. We will take one decision at a time. The March 4 decision will be based on the evolution of the economy and the risk since the last decision.”
The market has priced in a 75-percent chance of a further cut next month.
Cote said that although inflation, which the central bank aims to keep in a 1 to 3 percent target range, could briefly dip into negative territory due to cheap oil, there was no reason to fear deflation because expectations were anchored.
In most economies, there was a limited risk that inflation expectations would become unanchored, she said.
The central bank created a new quarterly survey measuring household inflation expectations in Canada, since it previously lacked such an indicator, Cote disclosed.
The first online poll of 1,000 Canadian consumers, conducted in November, revealed that “household expectations are anchored” to the Bank’s 1 to 3 percent target range.
The central bank made its January rate cut as a form of “insurance” against lower-than-expected growth and inflation.
Cote said the central bank was not concerned that big banks did not pass on the entirety of the rate cut to their customers through the prime rate, saying what was important was the cumulative effect on financial pricing across the board.
Asked about the bank’s inflation target of 2 percent, she said central banks had coalesced around this number but there was nothing magical about it. The central bank is studying whether to adjust that target.
Given the credibility and expectations associated with the current target, Cote noted “the bar for a change is high.” (With additional writing by David Ljunggren; Editing by Chizu Nomiyama, Jeffrey Hodgson and Chris Reese)