Instant View: Bank of Canada makes shock rate cut due to oil

COMMENTARY:

JAYSON MYERS, CEO OF CANADIAN MANUFACTURERS & EXPORTERS:

"It shows the uncertainty in the economy and that uncertainty is bad for the entire business sector. Certainly, for manufacturers there may be a short term benefit in terms of lower rates, but the rate has come down because of the economic uncertainty that lower prices are having in Canada. So when looking at overall economic demand, having that uncertainty when looking forward is going to be drag on the economy (and) is not good news for the manufacturing sector, although in the short term lower oil prices - particularly because consumers have more money to spend - that is good news, coupled with the lower dollar and of course and stronger rates of growth in the United States."

"The news today is surprising to me but it's also worrying because it's a real indication that the Bank of Canada thinks the impact is slowing the entire Canadian economy. And of course if you have fewer customers buying products that's not a good signal for growth. It's a surprise to me because although I knew lower oil prices, especially in Western Canada, were having a major impact on government finances - certainly on the oil and gas sector itself - there were also indications that lower oil prices would have some benefits. The Bank of Canada is in a much better position to do this economic analysis than we are and if they're saying the overall estimate is that this is going to be negative for the Canadian economy, and that is signaling (the need for) a drop in already low interest rates, that means there's a significant hint that is being expected and that is surprising."

ARON GAMPEL, DEPUTY CHIEF ECONOMIST AT SCOTIABANK:

"Obviously the Bank (of Canada) is concerned enough to lower rates at this time and they've lowered their forecasts. However, one would have thought that lowering their growth rate from 2.4 (percent) to 2.1 (percent) and really not changing too much longer term would not have elicited such a response."

"Clearly what this does is gives a view that the Bank will remain accommodative, increasingly accommodative, and that the lower dollar that will result will obviously be an even bigger impact on export earnings at a time when terms of trade are falling. So again, I think it should be viewed constructively longer-term but it reflects a concern that we're going through a little bit of a turbulent period here as most oil-producing nations are."

"Remember, Canada has flexibility, we began to raise interest rates as the recovery began so we have the ability to lower interest rates at this time. Other countries don't and have to go to unconventional monetary easing. It's more of a shock absorber, as is the lower (Canadian) dollar."

"The risk in the housing market is tied to a more moderate pace of economic growth and clearly lower rates are designed to provide support for an economy that obviously is taking a little bit of a hit at this time."

"They want to mitigate some of the unfortunate negative consequences that are hitting us early on."

ADAM COLE, HEAD OF G10 FX STRATEGY FOR RBC IN LONDON

"The move surely took us and others by surprise. We thought there was a very real risk that they'd move to a fairly explicit easing bias of sorts to set us up for the risk of rate cuts going forward. We didn't think things had deteriorated enough for the Bank of Canada to move as quickly as this."

"Obviously the markets have taken it as a big surprise and taken the Canadian dollar a lot lower."

SAL GUATIERI, SENIOR ECONOMIST, BMO CAPITAL MARKETS:

"They are pretty worried about the negative impact of lower oil prices, that's for sure, and they are almost adding some insurance to the economy in case oil prices fall further."

"The Canadian dollar will get slaughtered, debt markets should rally, stock markets might get a boost."

"I don't think anyone expected the Bank (of Canada) to cut interest rates today. The market was pricing in a moderate risk of a rate cut later this year, but not for today, at most we thought it would shift to a more dovish bias in its statement."

"The Bank just saw the need to insulate the economy from this negative shock. In the Bank's view, oil prices will cut Canada's economic growth, delay the closing of the output gap and raise downside risks to the inflation outlook, so to defend its two percent inflation target it saw the need to cut rates."

"Clearly the Bank is more worried about the economy and missing its inflation target than it is about household financial imbalances and the overvaluation in some housing markets."

"Most likely yes (we'll see more housing strength), particularly in the two cities that are the least affordable, Vancouver and Toronto."

SCOTT BRISON, FINANCE CRITIC FOR THE OPPOSITION LIBERAL PARTY:

"We're concerned that (Finance Minister Joe) Oliver and Prime Minister (Stephen) Harper continue to send out mixed signals about the Canadian economy and fail to provide a real plan to address (low) growth. Governor Poloz takes this seriously, he is addressing this through monetary policy, but what we lack is a government with a real economic plan with fiscal and other policies to actually give a jump start to the Canadian economy ... The decision by the Bank of Canada to reduce rates makes it even more important that we actually invest in things like infrastructure."

(This story corrects spelling of Jayson Myers in first commentary)

(Reporting by David Ljunggren, Andrea Hopkins, Solarina Ho and Alastair Sharp; Editing by Jeffrey Hodgson)