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Market Looks for BoC Rate Cut

Bank-of-CanadaRecession” is the word of the day.  “Tight credit” is a phrase in close second. 

While these descriptors are aimed at the U.S. economy, they’ve nonetheless got more and more Bay Street pro’s expecting a Canadian rate cut.

Here’s how the market is voting at the moment (see CEP story):

  • 0.25% rate cut by Oct. 21:  100% chance
  • 0.25% rate cut by year end:  100% chance
  • 0.50% rate cut by July 2009:  100% chance

These figures are based on a snapshot of overnight index swap (OIS) rates.  OIS rates are basically a reflection of how traders are betting on the Bank of Canada’s future intentions. (Note: These are “implied” probabilities and not actual probabilities.)

It’s still worth noting, however, that Canada’s latest GDP and inflation numbers are strong.  The BoC is basically being pulled in two directions. Which direction it picks, we won’t know for sure until on October 21 (maybe before, but unlikely).

The Bank of Canada last cut rates in April.