Calling trust in BoC into question

Calling trust in BoC into question

Calling trust in BoC into question The biggest news wasn’t the rate cut; it was the way in which the central bank implemented it – and what it may signify for future interest rates, according to one industry leader.

Canadian financial services industries were abuzz following the Bank of Canada’s announcement that it was lowering its overnight rate, speculating about what it would mean for Canadian borrowers. And the biggest news may not be the that it was the first such change in over four years but that it caught so many people off guard.

“Part of the significance of the announcement by the Bank of Canada is not the rate announcement but the fact that they surprised the markets in doing it, which would lead us to believe that there could be further shocks to the system,” Calum Ross of Verico Calum Ross Mortgage told MortgageBrokerNews.ca. “I don’t think further rate cuts are out of the question when they surprise us with this.

“It’s uncharacteristic for a central bank to surprise the market – the very basis of stability of a financial system is about maintaining the trust and not having surprises happen.”

In the wake of plummeting oil prices, some suspected the central bank was poised to axe its overnight rate target. It was the first rate reduction since April 2009.

Many were caught off guard.

According to a Bloomberg news article about the rate cut, none of the 22 economists who took a Bloomberg news survey predicted a rate cut.

“We’ve seen that things can (change) quickly,” Gord McCallum of First Foundation told MortgageBrokerNews.ca. “Who knows what’s in store – like you said, a lot of the predictions have been wrong.”

And it isn’t just brokers crying foul.

“Never, ever listen to a central bank, because they will use you and abuse you,” Eric Green, head of U.S. economic research at TD Securities in New York told the Financial Post.

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Brokers discuss the future of rates