Some Disappointment That the Bank of Canada Didn't Cut Rates More Sharply

October 21, 2008

Julian Beltrame of The Canadian Press has encountered similar reactions to my own from people he contacted that the Bank of Canada’s rate reduction of only 25 basis points appears smaller than the central bank’s own statement warrants.  As I noted in an earlier post today, the likeliest reasons why a bigger cut was not implemented seem to be 1) a desire by officials to keep the Bank’s powder dry in case decisive further easing is needed in the future and 2) the softening of monetary conditions in Canada caused by a sharply depreciating exchange rate, which augments the stimulus of lower nominal interest rates.

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