Canada to Hold Interest Rates At Current Level: Economy Expanding Modestly Despite Falling Oil Prices

The Bank of Canada has announced that it would keep the benchmark interest rate steady at 0.75 percent. The meeting on Wednesday sent out a signal that there is no need for another cut just after slashing the rate in January for the first time in five years.

The bank kept its target steady and noted that the economy is performing reasonably well, in line with expectations expressed in the monetary policy report of January. At that time, the central bank shocked markets by unexpectedly lowering the rate from one percent, the rate, it was holding since 2010. Now the apex bank has doused all such expectations, reports CBC. Ca News.

Toronto-Dominion Bank economist Brian DePratto said, "The decision to maintain the overnight rate at 0.75 per cent is consistent with Governor Poloz's statement that the January cut bought the bank some time to see how the economy responds." The Bank of Canada meets every six weeks to set its benchmark interest rate. The bank will have its next meeting on April 15.

Some Good News

The Huffington Post reports that there is some good news for the economy. It said the economists desire to see sustainable growth in the Canadian economy with less consumer debt and the economy being driven by higher exports is becoming a reality. Though the pace of such a change is slow, it is happening. StatsCan’s latest GDP shows exports have grown a strong 5.4 percent in 2014.

Exporter’s Contribution

According to Bank of Montreal economist Benjamin Reitzes, this is a paradigm shift with exporters able to make a good contribution to the economic growth. He noted this is happening for the first time since 1999. He said, exports used to be a drag on economic growth in the past decade. However, in 2014 the scenario has changed positively. It is going to sustain in 2015 as well.

“Look for that trend to continue in 2015 as a weaker dollar and firming U.S. growth help,” Reitzes asserted. He noted the last time Canada’s exports went positive was when the loonie was trading below 80 cents U.S. and oil prices were in the band of $30. So, the current economic conditions seem to be mirroring the scenario of 1999. However, Reitzes cautions that not everything is so glitzy like that time. Chances of business investment falling heavily in the early months of 2015 cannot be ruled out because of low oil prices.

Consumer Habits

There will be some changes in the pattern of consumer spending as well. Cumulatively, the spending will slow in 2015, after the consumer having leveraged the credit. Similarly, the housing market too will face a moderate slow down. As noted by the report of Canadian Imperial Bank of Commerce, Canada’s ability to export will also be hobbled by years of factory shutdowns.

The report showcases the concern that Canada does not have much to export as it used to do and that will constrain Canada’s ability to take advantage of the lower loonie. But the silver lining is that Canada’s solid export growth in 2014 could show to investors, business leaders and consumers that it still has a life beyond oil.

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