Bank of Mon­treal joins cho­rus of econ­o­mists pre­dict­ing in­ter­est rate cut

The Guardian (Charlottetown) - - BUSINESS -

The odds that the Bank of Canada will lower its key in­ter­est rate next week are ris­ing as some of the coun­try's big banks join the grow­ing cho­rus pre­dict­ing a cut.

The Bank of Mon­treal up­dated its fore­cast Thurs­day to pre­dict the cen­tral bank will cut its key in­ter­est rate next Wed­nes­day when it re­leases its up­dated fore­cast for the econ­omy.

The bank cited low oil prices and weak­ness in the Bank of Canada's re­cent busi­ness out­look sur­vey among its rea­sons for its new fore­cast.

Bank of Mon­treal chief econ­o­mist Doug Porter said the “re­lent­less” de­cline in com­mod­ity prices has hurt the econ­omy.

“We are far below where we were when the bank cut rates in July and as­so­ci­ated with that de­cline in oil and other com­mod­ity prices we've had some dis­ap­point­ment in the growth num­bers in Canada,” he said.

Porter said he ex­pects the fourth-quar­ter growth num­bers to be “well below” what he and the Bank of Canada ex­pected.

“Frankly, it is tough to look for a big snap back in the open­ing months of this year ei­ther, es­pe­cially given what is prob­a­bly hap­pen­ing to con­sumer and busi­ness con­fi­dence in re­cent weeks,” he said.

The cen­tral bank's key overnight rate sits at 0.5 per cent, and ex­pec­ta­tions that the Bank of Canada will cut its rate tar­get have been gain­ing mo­men­tum with the low price of oil.

CIBC chief econ­o­mist Avery Shen­feld said Thurs­day the odds have tilted in re­cent days and “are now ever so slightly on the side of see­ing a rate cut in Jan­uary, or April at the lat­est.”

TD Bank on Wed­nes­day said it was an “ex­cep­tion­ally close call” but also pre­dicted a rate cut.

The econ­omy has been strug­gling in re­cent months and growth is ex­pected to come in below the fore­cast made by the Bank of Canada last year.

A cut of a quar­ter of a per­cent­age point would re­duce the overnight rate tar­get to a level not seen since 2010, when the econ­omy was emerg­ing from the fi­nan­cial cri­sis.

It would also stand in con­trast to a move by the U.S. Fed­eral Re­serve to raise in­ter­est rates late last year and put fur­ther pres­sure on the Cana­dian dol­lar.

The loonie, which has been drop­ping as the price of oil has fallen, broke through the 70cent U.S. mark this week and has been trad­ing at lev­els not seen since 2003.

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