Response to Econ Article: Bank of Canada Abandons Rate- Hike Bias Amid Economic Slowdown

Analysis: Canada’s economy is struggling with a slowdown and because of that Bank of Canada abandoned its bias towards raising interest rates. Policy makers in Ottawa left their standard overnight rate unchanged at 1.75 %. Markets were expecting the change in stance but there is no chance of prices going up this year while pacing some odds on a rate cut. The Canadian currency dropped 0.5 percent to C$1.3488 per U.S. dollar, the lowest since Jan. 3. One dollar buys 74 U.S. cents. Yet even with the more dovish tilt and growth revisions, officials seem to be trying not to settle market bets on lower borrowing costs. The Bank of Canada stuck to its expectations of a rebound from the current soft patch, and predicted the extra slack created by the slowdown will eventually be absorbed. Poloz believe that interest rates are more likely to go up than down. Consumer-price Inflation is expected to remain close to the Bank of Canada’s 2 percent target throughout the projection period.

Stakeholders:

Importers of goods: Because the Canadian currency is weak, the importers of goods will be benefitted. They can sell their products more expensive to Canada.

Exporters of Canadian Goods: They will be affected negatively because the price of their product is cheap because the Canadian currency is weak.

Personal Opinion: I think the lower interest rates would contribute in GDP growth positively because people can borrow more from the banks and as result, spending will increase. Foreign investment will go down because when the interest rates are low, the currency goes down. Lower interest rates tend to be unattractive for foreign investment and decrease the currency’s relative value. Unemployment rates will go down. Extra spending spurred by lower interest rates helps companies hire more employees to handle the growth in business. When businesses hire more workers and increase production, people have more money in their pockets and are more likely to spend it. This takes a little time to show up in the economy, but with more people spending money, unemployment rates tend to drop even more. The demand for Canadian dollar goes down because of the lower interest rates. The Canadian currency will become weak.