OTTAWA — A year ago this month, financial markets were shaken, and economists caught flat footed, by a shock cut in the Bank of Canada’s key interest rate — the first adjustment in any direction in more than four years.
Calls growing for a Bank of Canada interest rate cut next week as oil’s spiral deepens
A growing number of economists are now forecasting the Bank of Canada will move to cut interest rates as soon as next week, as oil prices continue their relentless downward spiral and data suggest the weakness in the energy sector is spreading to other areas of the Canadian economy.
While many observers had already acknowledged the rout in global oil prices would hurt the economy, few appreciated at the time just how steep the collapse in growth would be, or how long it would linger.
Now, not many analysts would be surprised if central bank governor Stephen Poloz slashes borrowing costs again — this time, closer to the bone — after he and his policy council finalize their scheduled rate decision next week.
In other words, it appears the doves have come back to roost at the central bank. And no one doubts Poloz’s willingness to do what needs to be done to accommodate them where needed.
Poloz proved that last Jan. 21, cutting the bank’s trendsetting lending level to 0.75 per cent from one per cent, the level that had been untouched since September 2010, in a bid to fire up spending coming out of the previous recession. Poloz did it again on July 15, pushing the key rate down to 0.5 per cent.
But instead of getting better, the economy spiraled into another downturn in the first half of 2015 and looks precariously close to continuing that slide this year. Another 25-basis-point cut would leave the Bank of Canada around the same level where the U.S. Federal Reserve re-launched its policy rate in December — its first move up in almost 10 years — taking it to between 0.25 and 0.5 per cent, from zero to 0.25 per cent.