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15 Jul

Economist: Poloz Could Cut Rate This Week

General

Posted by: John Dunford

The economy is not performing at the pace the Bank of Canada hoped it would, which could lead to further rate cuts, according to one leading economist.

“The Bank of Canada meets next week and is faced with a troubling reality – output has fallen for four consecutive months, business confidence and capital spending plans are down and the trade deficit is at its second-largest level on record. Contrary to the Bank’s expectation, non-oil exports have not offset the decline in oil exports despite the sharp decline in the Canadian dollar,” Dr. Sherry Cooper, chief economist for Dominion Lending Centres wrote in her latest economic report. “That may well lead Stephen Poloz to cut Canadian overnight rates on July 15 for the second time this year.”

The Canadian economy is being outperformed by the U.S.’s according to Cooper, due to continued trouble in the energy sector. OPEC, meanwhile, is predicting a more balanced market in 2016 – but short-term price challenges are expected to prevail.

And the Canadian government recently released its jobs data report, which doesn’t bode well for the economy. Employment fell by 6,400, marked by the largest decline in part-time work in over four years.

Still, Cooper believes Stephen Poloz is in a difficult position.

“(Poloz) is between the proverbial rock and a hard place. If he does cut rates, he will be harshly criticized for contributing to a further rise in household debt and to feeding a housing bubble in Vancouver and Toronto,” Cooper wrote. “If he doesn’t cut rates, he will take heat for his Pollyanna-like assertion that the economy is going to bounce back any time now.”

The overnight rate currently sits at 0.75 per cent. The Bank of Canada will make its next rate announcement this Wednesday, July 15.