Bank cuts key rate

Bank of Canada slashes out­look for econ­omy, pre­dicts con­trac­tion in Q2

The Guardian (Charlottetown) - - BUSINESS -

The Bank of Canada cut its key in­ter­est rate on Wed­nes­day, slashed its out­look for the econ­omy and pre­dicted a con­trac­tion in the sec­ond quar­ter due lower oil prices and slump­ing ex­ports - but the cen­tral bank gover­nor wouldn't de­scribe the coun­try's eco­nomic woes as a re­ces­sion.

The bank cut its tar­get for the overnight rate by a quar­ter of a per­cent­age point to 0.5 per cent, send­ing the Cana­dian dol­lar tum­bling to its low­est lev­els in years.

The cen­tral bank also ex­plained that its lower out­look for eco­nomic growth - from 1.9 per cent ear­lier this year to 1.1 per cent - is due to Cana­dian oil pro­duc­ers cut­ting their in­vest­ment plans by close to 40 per cent this year, com­pared with an ear­lier es­ti­mate of about 30 per cent.

Slow­ing growth in China and non-re­source ex­ports fal­ter­ing - a trend the bank de­scribed as “a puz­zle that mer­its fur­ther study” - have also played a part in Canada's eco­nomic dif­fi­cul­ties.

Nonethe­less, Bank of Canada gover­nor Stephen Poloz said ex­ports are ex­pected to fuel growth in the sec­ond half of the year.

“The U.S. econ­omy does ap­pear to be gath­er­ing more mo­men­tum and so we are quite con­fi­dent that the ex­port side will re­sume its growth track which we saw in the lat­ter half of 2014,” Poloz told a news con­fer­ence.

“Along with the ac­tion that we've taken to­day, (that) makes us quite con­fi­dent as we look into the sec­ond half of the year.”

An eco­nomic con­trac­tion in the sec­ond quar­ter would mean the coun­try slipped into a re­ces­sion in the first half of the year, but Poloz wouldn't use the rword.

CP PHOTO

Bank of Canada Gover­nor Stephen Poloz re­sponds to a ques­tion on the banks in­ter­est rate cut de­ci­sion dur­ing a news con­fer­ence in Ot­tawa Wed­nes­day.

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