Bank of Canada delivers shock rate cut as ECB readies QE

Brazil's was the standout central bank, with its "Copom" monetary committee raising rates as expected for the second straight meeting by 50 basis points to 12.25 percent, its highest level since August 2011, in an attempt to contain inflation and restore some investor confidence.

The U.S. Federal Reserve, which appears committed to a raterise this year, meets next Tuesday and Wednesday, although it isnot expected to act until June of this year, at the earliest.

The global economy outside of the United States has turneddistinctly gloomy, with Japan and Europe struggling to gaintraction. A slump in oil prices to below $50 a barrel has addedto deflationary concerns and to worries that the global economyis struggling with a widespread deficit in growth.

"We think in light of recent developments, it is clear thatQE is coming, and knowing (ECB President Mario) Draghi'sknowledge of markets, it is unlikely he will disappoint – eitherby holding off on QE or announcing a smaller-sized program," Vasileios Gkionakis, head of global foreign exchange strategy atUniCredit Bank in London said in a report.

Central bankers from Turkey to China have weighed in withrate cuts recently as the global economic outlook has dimmed.That has raised the stakes for the world's "big three" centralbanks of the Fed, Bank of Japan and the ECB and made policydecisions more tricky and potentially more risky.

The Federal Reserve is the sole major central bank that maybe juggling with a near-term rate hike, especially as skepticismgrows at the Bank of England and the ECB is heading the oppositeway.

"The ECB has a huge task this week to restore confidence andtrust in financial markets," said Jaisal Pastakia, investmentmanager at Heartwood Investment Management. "The ECB’s recordhas been commendable...but the stakes are getting higher."

With the likely start date for the ECB bond buying programimminent and only one other opportunity at the beginning ofMarch for governors to agree details, pressure will be high onthem to finalize talks and announce the mechanics on Thursday.

Central bankers need to decide how far the ECB goes inmeeting demands from Germany's Bundesbank for the risk of thescheme to rest with national central banks in countries fromGreece to Italy, rather than with the ECB. ECB President MarioDraghi will speak to the media at 1330 GMT on Thursday.

The duration of the program is highly significant but alsocontested because Germany is troubled by the concept ofbond-buying, particularly any government bond purchases, andwants to limit its scale.

Slowing China adds to global woes

China and the United States are the only major economiesgrowing at a meaningful rate yet Beijing has also signaledconcerns over growth with more than $8 billion of injections ofshort term loans into the banking system on Wednesday.

The move followed data on Tuesday that showed the world'ssecond-largest economy grew 7.4 percent last year, the weakestrate since China was hit by sanctions in 1990 after theTiananmen Square crackdown.

China cut rates on Nov. 24 for the first time in two yearsdue to slower factory growth and a stalling property market,although People's Bank of China chief Zhou Xiaochuan onWednesday sought to downplay economic risks.

"Generally, if the average indicator of the Chinese economyis OK, the way for the central bank to have a specific policytargeted to the real estate market is difficult," he told theWorld Economic Forum in Davos, Switzerland.

That leaves the Fed on its own with its plans to lift ratesabove zero for the first time in six years despite the potentialfor a huge undershoot in the bank's inflation target.

"There is no need to rush to raise rates; at the same timewe want to make sure that we appropriately act in a way that wedon’t get behind the curve," San Francisco Federal Reserve BankPresident John Williams told reporters on Friday.

The U.S. economy added 1.7 million jobs in 2014 alone andlikely expanded by 2.6 percent in the year.