Bank cuts key rate
Bank of Canada slashes outlook for economy, predicts contraction in Q2
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.
Bank of Canada Governor Stephen Poloz responds to a question on the banks interest rate cut decision during a news conference in Ottawa Wednesday.