The Bank of Canada is seen in Ottawa in this file photo.Sean Kilpatrick/The Canadian Press
As expected, the Bank of Canada maintained the overnight rate at 0.75 per cent, sending the Canadian dollar and short-term yields higher.
The Canadian dollar was trading below 79.8 cents (U.S.) against the greenback prior to the announcement, and proceeded to spike by more than half a cent.
Meanwhile, the yield on the two-year Government of Canada bond rose by 10 basis points to 0.6 per cent. On Feb. 23, the yield bottomed out at 0.386 per cent.
The Governing Council struck an optimistic note on the forward outlook, stating that "data for 2014 as a whole suggest the anticipated rotation into stronger growth in non-energy exports and investment is well underway." In addition, monetary policymakers did not provide much in the way of a hint that further stimulus was in the offing.
But according to David Tulk, chief Canada macro strategist at TD Securities, it's a matter of when, not if, the Bank of Canada will cut rates again.
"Our sense is that there is a persistently low hurdle to cut rates in an environment where downside risks dominate, including our expectation for oil prices to fall further from here," he wrote in a note to clients ahead of the Bank of Canada announcement.
Mr. Tulk cited "a relapse in the U.S. economy, a larger hit to Canadian growth from the weakness already observed in oil prices, or a strong appreciation in the CAD (we see USDCAD at 1.16 as the pain threshold)" as other developments would elicit additional accommodation from the central bank. 1.16 equates to 86.2 cents (U.S.).
To adapt a tagline from Lay's potato chips, the market was, prior to this announcement, back to betting that the Bank of Canada can't just cut rates once. Nearly one full cut was fully priced in by the September announcement, with 10 per cent odds of the central bank being at the zero lower bound by its final meeting of the year.
Over the past two weeks, sentiment surrounding the likelihood of additional rate cuts has been shifting rapidly as traders reacted to central bank commentary and mixed economic data.
As traders digested Governor Stephen Poloz's rather hawkish commentary last Tuesday, in which he signalled that reduction in rates wouldn't be coming this time around, the overnight index swaps were, by Thursday afternoon, suggesting that a full rate hike was not priced in by year-end.
Traders pared their bets on the likelihood of more stimulus following this statement; as of 10:15 a.m. ET, just over 25 basis points of easing are expected by the end of 2015.
Since the Bank began to shift towards emphasizing the overnight rate as the key policy tool in 1994, there has never been an instance in which a rate hike was the next move following a single cut.
However, it's worth pointing out that an easing cycle has never commenced from such a low starting point. Monetary policy is generally considered to lose efficacy once nominal rates have been reduced to zero and policymakers are forced to pursue unconventional methods like negative rates or quantitative easing.
But as the Reserve Bank of India's surprise inter-meeting rate cut Tuesday night underscored, 2015 has been a year to expect the unexpected from central banks.