A growing number of economists are now forecasting the Bank of Canada will move to cut interest rates as soon as next week, as oil prices continue their relentless downward spiral and data suggest the weakness in the energy sector is spreading to other areas of the Canadian economy.

Think oil in the $20s is bad? Here in Canada, we’d be lucky to sell it for $10

By:  John Shmuel Alberta’s oil patch is feeling the pain as bitumen — among the cheapest oil in the world, but the most expensive to produce — hit a low of $8.35 this week. Read on Governor Stephen Poloz and his team will meet on Jan. 20 to make their latest rate announcement. Since their last meeting on Dec. 2, oil prices have fallen from US$40 a barrel to below US$30 a barrel. Canadian oil, based on Western Canadian Select, are trading at about a $10 discount to U.S. prices.

The Bank of Montreal said Thursday that its economists now see a rate cut at next week’s meeting, saying that recent economic developments have “pushed us into the (growing but not unanimous) rate cut camp.”

Even if we are proven wrong next week, oil holding around these levels or lower suggests a move in March or April would be likely,” said economists Doug Porter and Benjamin Reitzes in a note.

Avery Shenfeld, chief economist of CIBC World Markets, also noted Thursday that the likelihood of a rate cut in the next few months have increased.

With many forecasters giving Poloz the green light to cut (by forecasting one is coming), and the market pricing in more than one cut over the next half year (if not yet a full cut for January), the Bank may feel that a cut now would not be a shocking surprise to the C$ or other markets,” said Shenfeld.

Think oil in the $20s is bad? Here in Canada, we’d be lucky to sell it for $10 Loonie falls to 69 cents: What living with our low dollar means for ordinary Canadians Recent economic data suggests that the Canadian economy has flatlined. The Bank of Canada’s outlook survey, released earlier this week, showed that business investment intentions for 2016 are now lower than at any other time since 2009’s recession.

The survey also showed that the weakness in the energy sector is spreading to other sectors of the Canadian economy.

Meanwhile, bank governor Stephen Poloz has been increasingly employing a dovish tone which suggests he may be prepping markets for lower rates. In recent meetings, he has discussed topics such as negative rates and quantitative easing.

Even if the Bank doesn’t actually cut, they will certainly use language to convey a much higher likelihood of a rate cut ahead,” said Shenfeld.


Source:  Financial Post