Bank of Canada Lowers Overnight Rate to 0.5%

By Andrew Rickard | July 16 2015 08:58AM

Because of global economic developments that Bank of Canada governor Stephen Poloz describes as "quite disappointing", the prospects for Canadian economic growth for 2015 are now considerably lower. As a result, the overnight rate has been lowered to 0.5%.

poloz_stephen_articleIn the Monetary Policy Report published July 15, Poloz indicated that there were three reasons behind the bank's decision to drop rates: the lower long-term outlook for oil prices, the slowdown in China, and Canada's faltering non-resource exports. The Bank now expects that Canada’s real GDP will only increase by 1% in 2015 and by about 2.5% per cent in 2016 and 2017.

Poloz admitted that this lower interest rate could exacerbate problems associated with household debt and rising housing prices, but the Bank believes that these financial vulnerabilities would only translate into full-blown risks if there was a triggering event, such as a widespread and sharp decline in economic activity and employment.

"To conclude, the Canadian economy is undergoing a significant and complex adjustment, even while it is still trying to overcome persistent global headwinds," comments Poloz. "In the judgment of the Governing Council, today’s action is required to help facilitate the adjustment of the economy to this unusual situation."