Published On: Wed, Jul 15th, 2015

Bank of Canada cuts key interest rate as economy falls into recession

 

Bank of Canada Governor Stephen Poloz.

Bank of Canada Governor Stephen Poloz.

The Bank of Canada cut its trend-setting interest rate to 0.5 per cent on Wednesday to help boost an economy that’s in retreat.

The central bank said it believes the economy entered a recession in the first half of the year.

“The Bank’s estimate of growth in Canada in 2015 has been marked down considerably from its April projection,” the central bank said in a statement.

Consumer impact

 

The rate cut of another 25 basis points or 0.25 percentage points follows one made in January of a quarter of a point as sharply lower global oil prices were first denting growth in Canada.

A cut of 0.25 percentage points might not sound like much, but it will encourage more borrowing by businesses and consumers, the latter of which is already dealing with record debt loads.

The immediate recession seemingly outweighs consumer debt considerations, though, according to the bank’s commentary on Wednesday.

“While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment,” the central bank said.

“Additional monetary stimulus is required.”

The Bank of Canada’s key overnight rate directly influences private-lending interest rates for things like lines of credit and variable rate mortgages, and will generally serve to lower borrowing rates for credit — which are already near historic lows.

 

Enter recession

The contraction in growth through the first six months of the year stemmed from sharp declines in oil industry investment in things like new projects and employment as well as drop-off in exports as the global economy slowed, the bank said.

Odds of a rate cut grew steadily in recent weeks as trade data showed the country’s economy continuing to slow through the spring and early summer.

“The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities.  Real GDP is now projected to have contracted modestly in the first half of the year.”

The bank expects growth to pick up again this summer and through the balance of 2015.

The Bank of Canada’s key overnight rate directly influences private-lending interest rates for things like lines of credit and variable rate mortgages, and will generally serve to lower borrowing rates for credit — which are already near historic lows.

 

[SOURCE- “globalnews.com”]