15 Jul 2015
Last one for the BoC? – ING
FXStreet (Edinburgh) - Analyst at ING Bank James Knightley has reviewed the recent decision by the BoC to cut its refi rate to 0.5%.
Key Quotes
“The Bank of Canada has cut its overnight lending rate target to 0.5% from 0.75%. The market was split on whether or not the BoC would move, but the surprise January 21st rate cut had given us a warning that they tend to be one of the more active central banks”.
“The weaker than expected US and China activity story was cited as a factor behind their decision, which also saw them revise down their 2015 Canadian GDP growth forecast to 1.1% from the 1.9% figure they were expecting in April. The market for Canadian commodities has also deteriorated, which is hurting earnings, investment and jobs – remember that Canada is the World’s fifth largest producer of both oil and gas. The weaker growth story means that excess capacity in the economy will dampen inflation pressures, thereby offering the BoC the room to offer more stimulus to the economy”.
“Outside of the energy sector the BoC admit the situation isn’t as bad with a strengthening jobs market supporting confidence and loose financial conditions also helping the growth outlook for the second half of the year. Moreover, they expect the economy to grow 2.5% in 2016 with inflation gradually returning to target. Consequently, we don’t expect any additional policy stimulus from the BoC with the positive US Fed rates outlook set to push USD/CAD higher and help to make the Canadian economy more competitive on the international stage while also adding a little upside impetus to inflation”.
Key Quotes
“The Bank of Canada has cut its overnight lending rate target to 0.5% from 0.75%. The market was split on whether or not the BoC would move, but the surprise January 21st rate cut had given us a warning that they tend to be one of the more active central banks”.
“The weaker than expected US and China activity story was cited as a factor behind their decision, which also saw them revise down their 2015 Canadian GDP growth forecast to 1.1% from the 1.9% figure they were expecting in April. The market for Canadian commodities has also deteriorated, which is hurting earnings, investment and jobs – remember that Canada is the World’s fifth largest producer of both oil and gas. The weaker growth story means that excess capacity in the economy will dampen inflation pressures, thereby offering the BoC the room to offer more stimulus to the economy”.
“Outside of the energy sector the BoC admit the situation isn’t as bad with a strengthening jobs market supporting confidence and loose financial conditions also helping the growth outlook for the second half of the year. Moreover, they expect the economy to grow 2.5% in 2016 with inflation gradually returning to target. Consequently, we don’t expect any additional policy stimulus from the BoC with the positive US Fed rates outlook set to push USD/CAD higher and help to make the Canadian economy more competitive on the international stage while also adding a little upside impetus to inflation”.