Canadian Interest Rate Cut Appears Certain

There was some uncertainty about if the Bank of Canada would cut interest rates in September. The uncertainty seems to be over, as inflation statistics released this week were lower than expected. The only uncertainty now is:

How much will the Bank of Canada cut rates by?

The Calgary Herald gives the following quotes by economists:

"The risk of the Bank cutting its key policy rate on September 3 has become extremely high" - RBC Financial Group Economist Carl Gomez.

"[The data] virtually locks in another interest rate cut at its next fixed-announcement date on September 3" - TD Bank Financial Group senior economist Marc Levesque.

Not surprisingly, the Canadian dollar was down over 3/10 of a cent relative to the American dollar after the annoucement.

Important Links

• To learn more about how beliefs about future changes cause prices such as the interest rate to change today see "How Markets Use Information To Set Prices".

• To learn more about how central bank reactions to inflation and deflation influence interest rates see "What is deflation".

• To learn about the link between exchange rates and interest rates see my "Guide to Exchange Rates".

• You may also want to see "The Canadian Exchange Rate" which details the performance of the Canadian Dollar during the first half of 2003.