Rate Dropped to 3/4%
The Bank of Canada announced on the 21st January 2015 that it is lowering its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. This is the first change since September 2010. We will know shortly if the banks respond and drop the Prime Lending Rate to 2.75% as well.
According to the Financial Post “The bank’s rate cut on Wednesday and the delay of the federal budget are the result of the sudden and sharp drop of oil prices in the past six months as global prices have fallen from more than US$100 a barrel to less than US$47. Since then, a number of Canadian energy firms have announced billion-dollar cuts to their capital expenditure programs and some have even begun to layoff staff in response.”
The rate move, which few analysts anticipated, is an attempt by Mr. Poloz to shield highly indebted Canadian households from an oil-induced hit to their jobs and incomes – signs of which are already evident in Alberta.
The rate cut is a signal to private-sector banks to lower their own rates on mortgages and other loans.
It’s also likely to accelerate a slide in the Canadian dollar, now at roughly 83 cents (U.S.).
The Canadian economy grew at an estimated rate of 2.4% in 2014.
The bank also hinted at a possible spread to other parts of the country of a real estate slump already under way in Alberta. “The extent to which the downturn already evident in Alberta will spill over into other regions remains to be seen,” the bank pointed out in its monetary policy report.
