Slowing Inflation Puts Pressure on Bank of Canada to Cut Rates

Inflation numbers released today for Canada show that growth softened more than expected in January spurred on by retail price reductions particularly in the auto industry. Canada’s adjusted annual inflation rate is now pegged at 1.1 percent down slightly from December’s 1.2 percent, prompting growing speculation that the Bank of Canada will reduce the current benchmark lending rate of 1 percent.

Sal Guatieri – senior economist at BMO Nesbitt Burns – said that the inflation numbers were “certainly weaker than anticipated” and “there will be more pressure on the Bank of Canada to cut interest rates in March“.

In the past year, the Bank of Canada has cut interest rates by 350 basis points to 1 percent – the lowest overnight rate in over fifty years – and Governor Mark Carney has suggested that the Bank could implement further cuts at its next meeting on March 3rd.

“We will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required,” Carney told the Commons finance committee last week. “The Bank retains considerable policy flexibility, which we will use if required.”

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