BOC Poloz Could Cut Economic Forecast Due to Oil Price Drop

Canada’s central bank will make some of the deepest cuts to its economic and inflation outlooks since the 2008 financial crisis, economists said, as the drop in oil prices raises the prospect of lower interest rates this year.

Governor Stephen Poloz will release the bank’s quarterly monetary policy report at 10 a.m. tomorrow in Ottawa, along with the January rate decision. The Bank of Canada is expected to keep its main rate at 1 percent, where its been since 2010, according to a Bloomberg survey of 21 economists.

The Canadian dollar fell to its weakest in five years today on speculation the more than 50 percent drop in oil prices since June will lead to sharp economic revisions by the central bank. That’s prompted increased bets that the bank’s next move will be to cut rates, not raise them, according to swaps trading.

“We expect the bank to be quite dovish tomorrow,” said Charles St-Arnaud, senior economist at Nomura Securities Inc. in London. “We know they have to incorporate the lower price of oil in their analysis.”

In its October MPR, the bank assumed West Texas Intermediate would be trading at about $85 a barrel, instead of the $46.39 price today.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza