Stephen Poloz

Stephen Poloz

Bank of Canada cuts rate; Effect on cross-border shopping, homebuyers (VIDEO)

The Bank of Canada announced a cut to 0.75 per cent on overnight loans Wednesday, in response to a global drop in oil prices



The Bank of Canada has announced cuts in its overnight loan interest rate, from a target of one to 0.75 per cent. The projection, released on Wednesday, comes in response to steep drops in oil prices worldwide (the bank’s forecasts assume oil’s price at $60 per barrel USD).

“Oil’s sharp decline in the past six months is expected to boost global economic growth, especially in the United States, while widening the divergences among economies,” the bank’s release says.

The bank said it projects “real GDP growth will slow to about 1.5 per cent and the output gap to widen in the first half of 2015″.

In the video above, Bank of Canada Governor Stephen Poloz goes into more detail on the rate cut, and answers questions from journalists in Ottawa.

Read the Bank of Canada’s full release here

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Canadian dollar drops; Cross-border shopping to be affected

“The latest plunge in the loonie is making cross-border shopping and travel to the U.S. even more expensive,” reports Black Press’s Jeff Nagel, from an interview with SFU business professor Lindsay Meredith this morning. (More from the Peace Arch News)

The Canadian dollar dropped to as low as 80.7 cents USD on Wednesday after the Bank of Canada’s rate cut, and Meredith blamed the Harper government’s political posturing for today’s announcement and the fallout from it.

“This is about votes and the next election,” Meredith told Nagel. “It’s going to kill a lot of cross-border shopping, which is exactly what Canadian retailers want… That’s going to be deadly for Whatcom County (Washington) because they depend so much on B.C. shoppers.

“The losers are Canadian consumers. To the extent we buy imported products we get hammered more.”

The loonie was roughly par with the U.S. dollar almost two years ago.

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Economist: Rate cut good for Canadian borrowers, mortgage owners

While cross-border shoppers may be concerned by the Canadian dollar’s toe-stub, there may be one purchasing section of the economy that will be relieved with the bank’s rate cut – homeowners.

“Economists say (mortgage) rates will dip slightly in response to the Bank of Canada’s surprise move Wednesday to cut its trend-setting interest rate to 0.75 per cent, from one per cent, to soften the blow of dropping oil prices on the Canadian economy,” reported The Canadian Press’s Alexandra Posadzki on Wednesday.

“… the central bank’s rate cut will likely mean a corresponding 0.25 drop in variable, or floating, mortgage rates.

“Fixed-rate mortgages are also likely to see a slight decline, as they follow bond yields, which will move lower in response to the rate cut.”

Earlier in the week, Posadzki reported that falling oil prices would cause an uptick in the value of Canadian homes.

Vancouver’s average home price is expected to rise by 2.8 per cent in 2015, she reports.

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