Central banks step up fight as Europe bond-buying looms

Global central banks on Wednesday intensified their battle against slowing inflation as the risk of defeat mounts.

The Bank of Canada unexpectedly cut its main interest rate for the first time since 2009, saying the oil-price shock will drag down inflation. The Bank of Japan expanded and extended a lending program, while two Bank of England policy makers dropped calls for higher interest rates.

With the European Central Bank poised to announce on Thursday that it will buy government bonds for the first time, officials around the world are reinforcing or stepping up commitments to keep monetary policy loose. Behind the increased dovishness are fading price pressures, with the International Monetary Fund this week cutting its forecast for inflation in advanced nations almost in half.

The deflationary threat was a hot topic of debate at the World Economic Forum in Davos, Switzerland, as delegates discussed just how much more central banks can do and whether the Federal Reserve will even be able to raise rates this year.

Canada's central bank cut its rate on overnight loans between commercial banks by a quarter percentage point to 0.75 percent, a decision none of the 22 economists in a Bloomberg News survey predicted. The last reduction was in April 2009.

In Tokyo, Bank of Japan governor Haruhiko Kuroda and colleagues cut their core inflation forecast to 1 percent for the fiscal year starting in April, from 1.7 percent, and maintained a pledge to increase the monetary base at an annual pace of 80 trillion yen ($674 billion).

Hours later in London, the Bank of England said policy makers Martin Weale and Ian McCafferty this month stopped voting for a rate increase. That left the nine-member Monetary Policy Committee unanimous for the first time since July as it warned U.K. inflation may drop to zero in the first quarter.

Inflation is slowing around the world. Malaysia on Wednesday reported that consumer prices rose 2.7 percent in December from a year earlier, the second-weakest pace in 2014. New Zealand's fourth-quarter prices increased 0.8 percent from a year earlier, the slowest rate in six periods.

All that came as ECB president Mario Draghi was poised to lead the ECB into uncharted territory Thursday by announcing full-scale quantitative easing. Consumer prices fell in the euro area by 0.2 percent in December, the first decline since 2009 and way below the ECB's target of just below 2 percent.

Draghi has proposed spending as much as 1.1 trillion euros ($1.3 trillion) through asset purchases of 50 billion euros a month until December 2016, according to two euro-area central-bank officials. An ECB spokesman declined to comment.

"Mario Draghi is the most important person in the world at the moment," Douglas Flint, chairman of HSBC Holdings P.L.C., said in Davos.