Interest Rates Could Go Lower

par Andrew Rickard | July 03 2015 01:06PM

A further decline in both the gross domestic product (GDP) and weak results from the energy sector has made it more likely that Bank of Canada governor Stephen Poloz will need to reduce interest rates.

A report released by CIBC World Markets earlier this week warns that the Canadian economy is still on a slippery slope, and could fall back into recession. It notes that data from Statistics Canada shows that oil and gas extraction fell 3.4% in April, and that there were also reductions in copper, nickel, and lead extraction rates, which suggests weak prices for commodities as a whole.

"The surprise contraction in April GDP leaves open the probability that Q2 as a whole could be negative, which would technically put the economy in recession," concludes Andrew Grantham, senior economist at CIBC World Markets. "Although the BoC was already very cautious regarding its expectations for growth during the first half of the year in its April MPR, the actual numbers are clearly coming in even worse and could spark concern that the hit from oil isn’t as ‘front-loaded’ as previously assumed. Given that, another interest rate cut from Governor Poloz appears more likely than not."