Surprise rate cut a double whammy for Canada’s banks + MORE Jan 21st

The Bank of Canada is officially worried about the drop in oil prices – so much so that they have cut central interest rates for the first time since September 2010. The BoC announced this morning in their January rate announcement that the overnight lending rate, which sets the Prime rate (the cost of borrowing applied to the banks and sets the cost of variable loans in Canada), has been lowered to 0.75 per cent from 1 per cent.
Stated the Bank in their announcement, “This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada.”
The rate cut comes as a surprise; while economists expected that the BoC would lower its growth forecast and hint at how oil may change monetary policy in the near future, it was not anticipated that an actual cut would occur today. In fact, it’s an abrupt about-face from wide-spread belief that there would be a rate hike in late 2015 – a sentiment felt as recently as the beginning of January…

The Bank of Canada is officially worried about the drop in oil prices – so much so that they have cut central interest rates for the first time since September 2010. The BoC announced this morning in their January rate announcement that the overnight lending rate, which sets the Prime rate (the cost of borrowing applied to the banks and sets the cost of variable loans in Canada), has been lowered to 0.75 per cent from 1 per cent.
Stated the Bank in their announcement, “This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada.”
The rate cut comes as a surprise; while economists expected that the BoC would lower its growth forecast and hint at how oil may change monetary policy in the near future, it was not anticipated that an actual cut would occur today. In fact, it’s an abrupt about-face from wide-spread belief that there would be a rate hike in late 2015 – a sentiment felt as recently as the beginning of January…

David Cooper/Toronto Star/Getty Images
On paper, at least, Target Corp.’s ill-fated 2011 decision to enter Canada by paying $1.8 billion for the leases of a few hundred Zellers stores seemed like a no-brainer. Canada, unlike the U.S. at the time, was a bastion of economic opportunity—or so it appeared. Our banks were healthy, house prices were rising and consumers were spending more on clothing and housewares than ever before. Best of all, Target’s own research showed that as many as 10 per cent of Canadians were already crossing the border to shop in its sprawling, red-and-white U.S. stores, and that 70 per cent were familiar with its “cheap chic” brand.
Less than two years later, the Minneapolis-based giant is pulling out of Canada after amassing $2.5 billion in pre-tax losses. The collateral damage: 133 stores closed across the country, 17,600 jobs lost and a huge, $5.4-billion write-down for the U.S. parent company. So much for Target’s much-ballyhooed bid to change the face of Canadian retail…

Central bank’s decision puts loan margins front and centre again