Doldrums in Canada Mean Interest-Rate Cut Next Week, BofA Says

Canada’s central bank will cut interest rates back to a record low next week according to a Bank of America Merrill Lynch economist, who says that move is needed to prevent further economic damage from the drop in crude oil prices.

“There is no need to wait for the economy to fall further into the doldrums” Emanuella Enenajor, senior Canada economist in New York, said Monday in an interview with Pamela Ritchie on Bloomberg TV Canada. “History has shown the Governor isn’t shy to act” when needed, she said in reference to Governor Stephen Poloz.

Poloz defied expectations in January 2015 by cutting the central bank’s overnight rate to 0.75 percent, and cut again in July to 0.5 percent as oil prices plunged from more than $100 a barrel to less than $50. Today’s crude oil prices of about $31 mean many of Canada’s oil producers are unprofitable, and there is evidence the country’s manufacturers are also in decline, Enenajor said.

Poloz “can act preemptively,” she said in the interview. Canada’s economy probably shrank at a 0.4 percent annualized pace in the fourth quarter, making three quarters of contraction in 2015, she said.

The Bank of Canada published a survey of business executives on Monday showing that plans for investment and hiring are at their lowest since 2009, and that “negative effects of the commodity price shock continue to unfold and spread beyond the resource sector.” Those kinds of readings have already led economists at HSBC Bank Canada, Standard Chartered Bank and Capital Economics to call for a rate cut next week.

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