February 2015

Global Policy Changes

Over the past week there have been two important policy changes with the general intent to increase economic output in their respective regions. The Bank of Canada has decreased its overnight lending rate by 25 basis points to 0.75%, while the European Central bank has expanded its asset purchasing program to the amount of €60B per month.

Although most economists were shocked by the reduction in Canada’s overnight rate, Governor Stephen Poloz felt the benefits of acting promptly outweighed the costs of near-term market volatility. The primary reason cited for the cut in interest rates was lower oil prices which will decrease government revenues and put upward pressure on unemployment rates. Although lower oil prices mean Canadian consumers should have more money in their pockets, and a stronger U.S. economy coupled with a lower Canadian dollar should translate into higher exports, these positives are expected to be outweighed, ultimately resulting in what Stephen Poloz believes is unambiguously negative for Canada. Given the implication of a drop in the price of oil, the Bank of Canada now believe there has been a material setback in achieving full employment and a 2% inflation target. Rather than accepting a longer time horizon to achieve these goals, the Bank has decided to reduce rates now and effectively take out insurance against downside risks to the economy (Bank of Canada, 2015). We feel the move is prudent on the part of Canada and should help to keep growth rates at reasonable levels.

Heading across the Atlantic Ocean, the European Central Bank has expanded their asset purchase program to help kick-start its economy. The ECB will begin purchasing bonds issued by euro area governments in March 2015 in the amount of €60B per month and intended to continue the program until at least September 2016. The goal of the program is to achieve price stability and address the risk of persistently low inflation. The Governing Council of the ECB believes that monetary stimulus will relax financial conditions and increase access to capital for companies and individuals. The ECB expects this will support investment and contribute to realizing an inflation rate closer to 2%. As was the case in the United States, the asset purchase program will remain data dependent and the ECB will make adjustments, as necessary, based on developing economic conditions (European Central Bank, 2015.)


Bank of Canada. (January 2015). Release of the Monetary Policy Report. Retrieved from the Bank of Canada website at

European Central Bank. (January 2015). 22 January 2015 – ECB Announces Expanded Asset Purchase Programme. Retrieved from the European Central Bank website at

This newsletter was prepared solely by Bruce Morrison who is a registered representative of HollisWealth™ (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The view and opinions, including any recommendations, expressed in newsletter are those of Bruce Morrison only and not those of HollisWealth. TM Trademark of The Bank of Nova Scotia, used under license. Morrison & Partners Wealth Strategies is a personal trade name of Bruce Morrison.