Despite some Canadian analysts calling for yet another rate cut to the Bank of Canada’s overnight lending rate (this is the rate that directly impacts variable rate mortgages. To learn more on this impact, go here.) Stephen Poloz decided to stay the course, announcing this morning that the central bank would maintain the overnight target rate at 0.5%.
The rationale was that inflation in Canada was “evolving…as expected,” and that total CPI inflation remains “near the bottom of the Bank’s target.” The Bank appeared confident despite the fact that “disinflationary effects” of the nation’s slowing economy—due to “low consumer energy prices”—were only partially offset by the inflationary impact of the lower Canadian dollar. “As all of these factors dissipate, the Bank expects inflation will rise to about 2% by early 2017. Measures of core inflation should remain close to 2%. ”
Twice in 2015, Bank of Canada Governor Stephen Poloz dropped the BoC’s rate—ending the year with a rate of [at it’s current level of] 0.5%. Last year, the initial cut came as a surprise, but both cuts were an attempt to cushion the country’s economy from the impact of lower oil prices.
Today’s decision comes on the heels of some troubling news. Last week, the loonie dropped to 69-cents U.S. and oil dropped below US$30 per barrel. This week started off with a proclamation from the IMF that U.S. and global economic growth is actually expected to be weaker; the IMF economists dropped the projected growth to 3.4%, down 200 basis points from their October forecast. Their rationale was that the world economy grew only 3.1% last year, the weakest growth since the 2009 recession. The main reasons for this slow growth, according to the IMF, was China’s slowing economy and falling commodity prices.
—A previous version of this article incorrectly stated that the loonie dropped to 59-cents U.S. instead of 69-cents U.S.—