Post by SpeedFreak on Jul 15, 2015 13:14:16 GMT -5
Canada's central bank today lowered its benchmark interest rate to 0.5 per cent, the second time this year it has dropped the rate to stimulate the economy, after holding it steady for about four years.
The loonie lost more than a cent to 77.27 cents US in reaction to the news — the lowest level seen since 2009, when Canada was in a recession. All things being equal, rate cuts normally drive currencies lower because they make the country's economy less attractive to foreign investors.
"The bank's estimate of growth in Canada in 2015 has been marked down considerably from its April projection," the bank said in a statement announcing the news Wednesday.
"Real GDP is now projected to have contracted modestly in the first half of the year," the bank said, which is its way of saying it expects the Canadian economy shrank in the first half of 2015 — the technical definition of a recession.
'Optimists have been quite simply wrong this year.'- Doug Porter, BMO economist
For the year as a whole, the bank is now forecasting a rebound later in the year, but a small one: 1.1 per cent growth in GDP for all of 2015. As recently as April, the bank was expecting 1.9 per cent growth this year.
BMO economist Doug Porter said the central bank's policy statement Wednesday is a much bleaker view on the economy than other recent ones.
Media placeholder
The Bank of Canada Cuts Interest Rate to .5%2:12
"We believe they are too downbeat on second-half prospects, but admittedly optimists have been quite simply wrong this year," Porter said.
ANALYSIS: Should Stephen Poloz be more worried about the economy?
The bank's new rate — also known as the "target for the overnight rate" — is a 25 basis-point reduction from its previous 0.75 per cent level.
Economist Todd Hirsch with ATB Financial says the rate cut will be of limited help in Alberta.
Before the Bank of Canada cut the rate to 0.75 in January, it had been at one per cent since late 2010.
TD Bank cuts rate in reaction
At least one of Canada's big banks was quick to pass on at least part of the central bank's rate cut to consumers.
TD Bank announced within minutes of the Bank of Canada's decision that it will also cut its prime lending rate to 2.75 per cent, starting Thursday.
The central bank's rate impacts the rates that commercial banks offer because it affects their cost of borrowing. Although they're not obligated to, banks tend to either pass on the savings, or the added costs.
stephen-poloz-feature
Stephen Poloz cut the Bank of Canada's benchmark interest rate on Wednesday to 0.5 per cent from 0.75.
But TD's cut is only 10 basis points lower than where it was before, not the total amount of the 25-point cut that the central bank announced. TD pocketed a similar amount when the central bank cut its rate by 25 points in January, passing on only 15 points to its customers.
Added together, that means TD has cut its prime lending rate by 25 basis points during a time when the central bank has cut its benchmark rate by twice that.
Canada's other major lenders are usually quick to respond to any change in the prime rate by any rivals. Economist Sherry Cooper at Dominion Lending Centres says she expects the other big banks, if they move to match TD's rate, will similarly not pass on the full amount of the rate cut.
"The follow-through at the financial institutions will likely be partial, as it was with the last rate cut in January," she said Wednesday. "At the margin, this might boost housing and consumer credit a bit, but these are not the sectors most in need of stimulus."
The loonie lost more than a cent to 77.27 cents US in reaction to the news — the lowest level seen since 2009, when Canada was in a recession. All things being equal, rate cuts normally drive currencies lower because they make the country's economy less attractive to foreign investors.
"The bank's estimate of growth in Canada in 2015 has been marked down considerably from its April projection," the bank said in a statement announcing the news Wednesday.
"Real GDP is now projected to have contracted modestly in the first half of the year," the bank said, which is its way of saying it expects the Canadian economy shrank in the first half of 2015 — the technical definition of a recession.
'Optimists have been quite simply wrong this year.'- Doug Porter, BMO economist
For the year as a whole, the bank is now forecasting a rebound later in the year, but a small one: 1.1 per cent growth in GDP for all of 2015. As recently as April, the bank was expecting 1.9 per cent growth this year.
BMO economist Doug Porter said the central bank's policy statement Wednesday is a much bleaker view on the economy than other recent ones.
Media placeholder
The Bank of Canada Cuts Interest Rate to .5%2:12
"We believe they are too downbeat on second-half prospects, but admittedly optimists have been quite simply wrong this year," Porter said.
ANALYSIS: Should Stephen Poloz be more worried about the economy?
The bank's new rate — also known as the "target for the overnight rate" — is a 25 basis-point reduction from its previous 0.75 per cent level.
Economist Todd Hirsch with ATB Financial says the rate cut will be of limited help in Alberta.
Before the Bank of Canada cut the rate to 0.75 in January, it had been at one per cent since late 2010.
TD Bank cuts rate in reaction
At least one of Canada's big banks was quick to pass on at least part of the central bank's rate cut to consumers.
TD Bank announced within minutes of the Bank of Canada's decision that it will also cut its prime lending rate to 2.75 per cent, starting Thursday.
The central bank's rate impacts the rates that commercial banks offer because it affects their cost of borrowing. Although they're not obligated to, banks tend to either pass on the savings, or the added costs.
stephen-poloz-feature
Stephen Poloz cut the Bank of Canada's benchmark interest rate on Wednesday to 0.5 per cent from 0.75.
But TD's cut is only 10 basis points lower than where it was before, not the total amount of the 25-point cut that the central bank announced. TD pocketed a similar amount when the central bank cut its rate by 25 points in January, passing on only 15 points to its customers.
Added together, that means TD has cut its prime lending rate by 25 basis points during a time when the central bank has cut its benchmark rate by twice that.
Canada's other major lenders are usually quick to respond to any change in the prime rate by any rivals. Economist Sherry Cooper at Dominion Lending Centres says she expects the other big banks, if they move to match TD's rate, will similarly not pass on the full amount of the rate cut.
"The follow-through at the financial institutions will likely be partial, as it was with the last rate cut in January," she said Wednesday. "At the margin, this might boost housing and consumer credit a bit, but these are not the sectors most in need of stimulus."
