Poloz speech may hint at cutting of rates
Bank of Canada governor Stephen Poloz is set to give a speech Monday that could give hints about whether an interest-rate cut is coming on Dec. 7.
Poloz’s speech will land just days ahead of the meeting and comes as Canada’s economy struggles to grow amid low oil prices and the large debt many Canadians now carry.
Bond yields have also spiked in the past month, adding another complicating factor for Poloz.
“The BoC may opt to cut rates to counteract some of the increase in Canadian bond yields, and to buy extra ‘insurance’ just in case fiscal stimulus promises at home and abroad fall short,” said Citi economists in a note to clients.
Markets will likely be very interested in hearing Poloz’s thoughts on bond yields. Yields around the world have risen following the U.S. election of Donald Trump, who has proposed tax cuts and fiscal spending that are seen as inflationary.
“Higher rates bode poorly for Canada’s heavily indebted consumers, and the fragile domestic housing market, which is currently undergoing its own correction,” said Citi economists.
“We contend that the BoC may opt to cut rates on the 7th to counteract some
We contend that the BoC may opt to cut rates on the 7th to counteract some of the increase in yields.
of the increase in yields.” All of that is taking place amid a very uncertain backdrop for the Canadian economy.
The effects of the Liberal government’s $186-billion infrastructure spending plan have yet to be felt, and because the plan is spread out over 10 years, it could be some time before the spending filters into the economy.
At the same time, Trump’s proposals to cancel the Trans-Pacific Partnership deal and renegotiate the North American Free Trade Deal pose a serious threat to Canadian trade.
That means the Bank of Canada could lean on the safe side and cut rates.
“Canada could benefit from the prospective U.S. fiscal expansion, lower Canadian dollar and crossborder infrastructure projects,” said Citi economists.