The Bank of Canada’s Governor, Stephen Poloz, publicly accepted the fact that he has been overly optimistic regarding the condition of the Canadian economy. He has now tried to help the economy once again by reducing the central bank’s over night interest rate from 0.75 to 0.50 per cent.
The Canadian dollar has reacted by dropping to 77.43 cents U.S., a level not seen since March 2009. This is when Canada was in the middle of a recession. The economy is now recognized as having contracted slightly in the first half of the this year by the bank, mentioned in a statement accompanying the latest announcement.
The Bank of Canada overnight lending rate is the central bank’s main tool for influencing Canadian interest rates. This important decision comes in the wake of lower oil prices. A number of major banks have concluded the Canadian economy has been in a recession for the first half of this year. The negative growth in Canada’s economy the first half of 2015 fits the typical meaning of a recession. The bank governor consistently refused to make any reference to a recession, claiming that any discussion as to whether we are in a recession or not is unhelpful.
Stephen Poloz, who shocked the financial community in January by delivering in an unanticipated rate decline, had been expecting the overall economy to rebound rapidly from the oil price shock that hurt our economy earlier this year. Now he is saying that he had been overly optimistic, and the bank’s estimation of economic growth in 2015 has been reduced considerably from April. This new position demonstrates even further cutbacks in financial investment in the energy market, combined with weakened exports of non-energy goods.
“Canada’s overall economy is expected to expand by about 1%,” Poloz said, and our economy is not expected to be back to normal until the first half of 2017. The Bank of Canada’s governor also cited international circumstances for Canada’s economic issues, referring mainly to conditions in the United States and China. Poloz stated he anticipates the U.S. economic climate to recover again in the second half of this year, but does not see any immediate change in China.
As with the last quarter point drop was saw, a few months ago,, mortgage interest rates are not going to drop buy the same amount. Mortgage rates are actually dictated more by the bond market than the Bank of Canada’s overnight lending rate, and will likely only drop 0.10%. Some consumer who have a variable rate mortgage will see some savings for now.