Fundamental Comment

Will the BOC cut interest rates?

Will the BOC cut interest rates

The Bank of Canada (BOC) is expected to be one of the first major central banks to cut interest rates in response to concerns about the spread of the Coronavirus and the potentially negative effects on global growth performance.

Analysts are expecting to see an interest rate cut on Wednesday’s monetary policy meeting, with expectations of a 25-basis points slash to 1.50 percent.

This comes as markets are weighing on Canadian interest rates cut before the end of the year, in line with the Fed's expectations that have escalated in the past few days.

Several factors may contribute to the Central Bank of Canada's reining in its current rate cuts, most notably the possibility of a return to political turmoil with a negative impact on Canada's economy.

Looking ahead, investors in the financial markets and monetary policy makers in the world's major central banks are growing concerns about the expected damage to global growth caused by the spread of Coronavirus, increasing the likelihood of Canadian interest cuts.

There is nothing to prevent monetary authorities from cutting interest rates, although there have been no recent views from leading analysts and market-related institutions that favor Canadian interest rate cuts.

However, rising expectations of a Federal Reserve cut over the past few weeks may push the BOC governor Stephen Poloz to cut interest rates on Wednesday to ensure that Canadian interest rates follow the direction dictated by the Federal Reserve.

As he has recently stressed more than once on the possibility of moving interest swells or fall at any time in accordance with the latest developments in the political and economic arena or in the global economy and the international political scene.

Canada's January interest statement was characterized by a cautiously optimistic language, both in terms of developments in the global economy and in domestic economic conditions, which is likely to be that the central bank does not adopt an unconditional language of optimism to leave the door open to all scenarios regarding the future course of monetary policy.

It is worth mentioning that the Reserve Bank of Australia slashed its cash rate by 25 basis points to 0.50 percent on Tuesday, while the Federal Reserve surprised market by a 50-basis point interest rate cut.

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