“The Bank of Canada is cutting its key interest rate for the second time this year, citing a larger-than-expected first half contraction and a “puzzling” stall in non-energy exports.
The central bank lowered its benchmark overnight rate by a quarter percentage-point Wednesday to 0.5 per cent, blaming faltering global growth, disinflation and low prices for oil and other commodities.
The Canadian dollar fell more than a cent in the wake of the decision. Banks also cut borrowing costs, with Toronto-Dominion Bank cutting its prime rate Wednesday morning by 10 basis points to 2.75 per cent,” wrote Barrie McKenna for The Globe and Mail on July 15, 2015.
McKenna continued, “Making matters worse a massive plunge in business investment – down 16 per cent in the first quarter – has become a dead-weight on the economy. The bank now says it expects investment in Canada’s oil patch to plummet close to 40 per cent this year, significantly worse than the 30 per cent it initially thought, as long-term investments in the oil sands are delayed or put on hold until the price of crude comes back.
A lower overnight rate typically prompts banks to cut rates on home mortgages and other loans – a situation that could exacerbate record household debt levels in Canada and add fuel to the hot housing market in cities such as Toronto and Vancouver.
But Mr. Poloz and his central bank colleagues say the risk of weak growth and disinflation outweighs the worry that Canadians may pile on more debt.”
Read the full article here.
Raymond Matt, CFP, CLU, TEP, CHS
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