The Bank of Canada cut its trendsetting interest rate a quarter of a point to 0.75 per cent, the first such change in more than four years. Governor Stephen Poloz blamed slumping oil prices for the rate cut, and called the price drop “unambiguously negative for the Canadian economy.” Maclean’s Ottawa bureau chief John Geddes looked at the politics of the move, while MoneySense senior editor Romana King reported what it’ll mean for Canadian mortgages.
Maclean’s has convened a panel of experts to parse the central bank’s big move. Mark Brown, managing editor at Canadian Business, will lead a chat with Romana King, senior editor at MoneySense; a pair of Econowatch bloggers at macleans.ca will also join us this afternoon: Mike Moffatt, an assistant professor at Western University’s Ivey School of Business; and Andrew Leach, the Enbridge Professor of Energy Policy at the University of Alberta. We’ll start the chat at 2 p.m. ET.
The Canadian Press tells us five things to know about today’s announcement:
— The Bank of Canada believes low oil prices are overall negative for the Canadian economy.
— By cutting its target for the overnight rate, the central bank is trying to push down the interest rates charged by Canada’s big banks, making it cheaper for companies to borrow money to grow their businesses.
— A rate cut by the central bank likely means lower interest rates for variable rate mortgages, lines of credit and other loans based on the prime rate, likely to boost consumer spending.
— The loonie immediately fell by more than 1.5 cents against the U.S. dollar. A lower dollar makes Canadian goods cheaper for U.S. buyers, helping to stimulate exports but increasing the cost of imports.
— The Bank of Canada used an estimate of US$60 for the price of oil in making its decision. Oil is trading below US$50 today. If oil stays where it is the central bank expects the economy to grow even slower than it has forecast.