22 Jan 2015
FAlling oil prices might lead to another rate cut by the BoC – ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, expects that another rate cut by the BoC is possible if oil prices fail to stabilise.
Key Quotes
“Lower oil prices will continue to drag headline inflation rates lower according to the BoC. Currently, CPI is running in line with the medium-term target at 2%, but is expected to fall to 1.6% on Friday and given what has been seen in the US and Europe, sub 1% readings are looking increasingly likely.“
“Meanwhile, the low oil price is hurting investment in the energy sector while Canada’s “weaker terms of trade will have an adverse impact on incomes and wealth, reducing domestic demand growth”. Consequently, the BoC now predict GDP growth will slow to just 1.5% in the first half of 2015.”
“The BoC also think that the low oil price will create downside risks for financial stability as well as growth and inflation, consequently, the Bank’s action “is intended to provide insurance against these risks”.”
“Surveys showed no-one forecasting this outcome, but the BoC has historically been one of the more activist major central banks. Consequently, another rate cut in coming months cannot be ruled out if oil prices fail to stabilise.”
“For now though, we suspect the BoC will implement a wait-and-see strategy, citing positives from currency weakness and improving demand from its key export market in the US.”
“Moreover, the BoC continue to believe that while underlying inflation will fall in the near-term, it will “return gradually to 2% over the projection horizon”.”
Key Quotes
“Lower oil prices will continue to drag headline inflation rates lower according to the BoC. Currently, CPI is running in line with the medium-term target at 2%, but is expected to fall to 1.6% on Friday and given what has been seen in the US and Europe, sub 1% readings are looking increasingly likely.“
“Meanwhile, the low oil price is hurting investment in the energy sector while Canada’s “weaker terms of trade will have an adverse impact on incomes and wealth, reducing domestic demand growth”. Consequently, the BoC now predict GDP growth will slow to just 1.5% in the first half of 2015.”
“The BoC also think that the low oil price will create downside risks for financial stability as well as growth and inflation, consequently, the Bank’s action “is intended to provide insurance against these risks”.”
“Surveys showed no-one forecasting this outcome, but the BoC has historically been one of the more activist major central banks. Consequently, another rate cut in coming months cannot be ruled out if oil prices fail to stabilise.”
“For now though, we suspect the BoC will implement a wait-and-see strategy, citing positives from currency weakness and improving demand from its key export market in the US.”
“Moreover, the BoC continue to believe that while underlying inflation will fall in the near-term, it will “return gradually to 2% over the projection horizon”.”