Bank of Canada Cuts Rate to 0.50%

The Bank of Canada is cutting its key interest rate for the second time this year, citing a larger-than-expected first half contraction and a “puzzling” stall in non-energy exports.

The central bank lowered its benchmark overnight rate by a quarter percentage-point Wednesday to 0.5 per cent, blaming faltering global growth, disinflation and low prices for oil and other commodities. The Canadian dollar fell more than a cent in the wake of the decision.

The bank stopped short of characterizing the economy’s first-half stall as a recession, even a mild one. But some economists say that is exactly what Canada is facing.

The latest rate cut marks a sudden about-face by Bank of Canada Governor Stephen Poloz, who has repeatedly insisted that the economic hit from the oil price collapse would be quickly offset by surging non-oil exports, such as car parts, lumber and machinery and equipment. He had characterized his earlier January rate cut as “insurance.”

But six months later the rebound remains elusive, in spite of a much cheaper Canadian dollar, now worth less than 80 cents (U.S.).

The bank acknowledged in its latest forecast, also released Wednesday, that the failure to get a lift from non-energy exports is “puzzling.”

via The Globe and Mail

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