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Prime Minister Stephen Harper (R) welcome in-coming Governor of the Bank of Canada Stephen Poloz during a photo-op June 03, 2013 in Prime Minister Harper's office on Parliament Hill in Ottawa.Dave Chan/The Globe and Mail

We'll probably never know what The Two Steves – Prime Minister Harper and Bank of Canada Governor Poloz – said to each other on Monday morning as financial markets melted down like a Popsicle in the mid-August sun. But the mere fact that the PM got the central bank's top man on the phone (and saw fit to publicize the conversation) speaks to how dramatically the tide may have turned for Canada's near-term economic outlook – and how quickly another round of rate cuts from the bank has been moved from the back burner and brought back to a raging boil.

On Monday, the Prime Minister's Office made the unusual move of disclosing to the national press corps that Stephen Harper had been in touch with Stephen Poloz about the market turmoil.

Meanwhile, the bond market was pricing in a 75-per-cent probability that the Bank of Canada would cut its key policy rate to 0.25 per cent from 0.5 per cent at its Oct. 21 rate announcement – which would be the third quarter-percentage-point cut from the bank this year.

Although those odds eased a bit to 56 per cent on Tuesday, as China's rate cut caused global markets to step back from the abyss, it nevertheless shows that observers are taking much more seriously the need for further economic stimulus from the central bank in light of the deterioration of markets and the global economic outlook in these dog days of summer. As recently as the end of July, the market had the odds at a mild 25 per cent.

Indeed, there are growing rumblings that the bank could even cut sooner – at its next rate announcement, just two weeks from now. Yes, that would be in the midst of the federal election campaign, a notion that most considered all but unthinkable for the central bank before the markets started crumbling amid fears of a major downturn in China's economy.

And no, it's not because Mr. Harper got on the phone with Mr. Poloz, although some market participants took the news of the call that way. Mr. Poloz values the Bank of Canada's closely guarded independence far too much to allow political concerns to muddy his monetary policy agenda. While the Harper government has been accused in the past of dipping an occasional toe into issues that are considered the purview of the central bank, it's not unheard of for the Prime Minister and the Governor to have a talk every now and then – though it is unusual indeed for Mr. Harper's office to broadcast it to the news media. Most likely, it was a fairly general conversation about the market events and their possible implications for the Canadian economy, which Mr. Harper's people chose to publicize to send a political message that their man on the campaign trail still has his hands firmly on the economic tiller. But any rate move will be Mr. Poloz's decision (in concert with his governing council), not Mr. Harper's.

More to the point are the key factors that Mr. Poloz has been looking at in making two rate cuts already this year. And at the top of the list is oil.

The central bank's most recent economic outlook, contained in its quarterly Monetary Policy Report in mid-July, assumed that the price for West Texas intermediate oil, the North American benchmark grade, would average near $60 (U.S.) a barrel. The price sat below $39 on Tuesday, and has averaged just $45 a barrel since that outlook was published, as concerns about slowing demand from the slumping Chinese economy have fuelled a sharp selloff.

While the bank isn't going to get too hung up about short-term price volatility, the risk that oil prices will undershoot its assumption by a wide margin have certainly increased sharply. And given that rate cuts were the order of the day earlier in the year to buy the Canadian economy "insurance" (as Mr. Poloz put it) against the potentially severe negatives of the oil shock, it seems logical that another round of the shock might call for another cutting of the bank's rate. Another cut might also soothe the nerves of financial markets that are looking more jittery almost daily – evidence that authorities are taking firm action.

As to whether the Bank of Canada would dare make a rate cut in the midst of an election campaign, it wouldn't be without precedent. Since 2000, when the central bank instituted its current practice of setting its policy rate on fixed dates eight times a year, it has twice made rate changes during a federal campaign – an increase ahead of the January, 2006, election, and a cut shortly before the October, 2008, vote. (Though it should be noted that the cut was part of an emergency co-ordinated easing by international central banks in the midst of the financial crisis, not a regularly scheduled Bank of Canada rate decision.)

On the other hand, Mr. Poloz is notoriously averse to any overlap of politics and central banking; as a matter of principle, he never discusses any interactions he has with the government. The fact that Mr. Harper's people publicly disclosed Monday's conversation has put Mr. Poloz in a tricky spot that almost certainly means that, barring a severe global collapse, he won't dare even hint at a rate cut before the Oct. 19 election, lest it be suggested that Mr. Harper's fingerprints were all over the rate decision.

If Mr. Poloz were to stand pat in September, he would have the advantage of waiting to see how the nervous markets respond to the U.S. Federal Reserve Board's highly anticipated rate decision in the middle of the month. The Fed has long been expected to start raising rates next month, a move that could spur further volatility in markets. But with the recent alarming declines fuelling some serious economic and financial uncertainty, it looks increasingly likely that the Fed will hold off.

A stand-pat decision by the Fed could stabilize markets and give the Bank of Canada more solid footing on which to make a decision based on the bigger picture in October – with the urgency, the election and the perceived political pressure out of the picture.