Bank of Canada cuts interest rate, lowers economic outlook
The Bank of Canada reduced its benchmark interest rate for a second time this year as the damage from lower oil prices shrank the economy in the first half and leaves a full recovery almost two years away.
Gross domestic product probably “contracted modestly” in the first half of 2015, policy makers said, without calling it a recession, which is typically defined as two straight quarters of negative growth. Output will recover this quarter as non-energy exports rebound from a decline the bank called “puzzling.”
The central bank lowered the benchmark rate on overnight loans between commercial banks to 0.5 per cent from 0.75 per cent, where it had been since a cut in January. The first-half contraction led to a “marked increase in excess capacity,” the bank
Policy makers at the bank said output probably shrank at a 0.5 per cent annualized pace in the second quarter, compared with an April prediction of a 1.8 per cent expansion. The economy registered a 0.6 per cent contraction between January and March.
Historically low interest rates have already pushed consumer debt-loads and home prices to record highs, while failing to trigger lasting investment and export gains.
For the housing market, where the cheapest mortgages in decades have led to record consumer debt burdens, the bank reiterated its view there’s no bubble. “The Bank continues to anticipate a constructive evolution in the housing market,” its economic forecast paper said, with a moderation in housing in 2015, followed by stabilization in 2016 and 2017. (Source: Hamilton Spectator)