Oilpatch pain to be felt across Canada: Poloz

Lloyd Doyle
December 8, 2018

Citing moderating global growth, a "materially weaker" outlook for the oil sector, a faster-than-expected deceleration of inflation, a drop in business investment and downward historical revisions to output, the Bank of Canada said "there may be additional room for non-inflationary growth".

The bank's rate directly affects the rates that Canadian consumers get from retail banks.

When the central bank hikes its rate, it makes borrowing more expensive - but it's good news for savers.

TD senior economist Brian DePratto wrote about Wednesday's rate decision in a research note: "To be sure, while everything points to a January hike being off the table, the path thereafter is less clear, and a 491-word statement does not give much to work with". The bank raised its rate to that level in October, the fifth time since the summer of 2017 that it chose to hike.

"That said, given the consolidation that has taken place in the energy sector since 2014, the net effects of lower oil prices on the Canadian economy as a whole, dollar for dollar, should be smaller than they were in 2015".

The Canadian dollar plunged more than half a cent Wednesday morning when the bank announced its decision, dipping below 0.75 USA level to its lowest level since May 2017.

The central bank revealed Wednesday it will keep its benchmark interest rate - known as the target for the overnight rate - at 1.75 per cent.

The negative impacts of low oil prices that have struck Western Canada will reverberate across the entire national economy, the head of the Bank of Canada said Thursday.

The Bank of Canada has estimated it will no longer need to increase the interest rate once it reaches a level of between 2.5 per cent and 3.5 per cent, but Poloz has said this destination range remains "sufficiently uncertain" and could move up or down.

Advertisment The Canadian dollar fell below 75 cents USA for the first time in 18 months on Wednesday after the Bank of Canada announced that it is standing pat on interest rates for the time being.

Many market watchers had expected governor Stephen Poloz to wait until at least January before his next rate increase.

Core inflation running at the central bank's 2 percent target - and which indicates the economy is operating at close to capacity - is one key reason policy makers want to raise rates. That means investment had farther to fall a few years ago.

But risks remain, particularly with the nation's highly-indebted households, leading some to question whether the economy can cope with multiple headwinds on top of rising borrowing costs.

Other reports by Iphone Fresh

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