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Bank of Canada Expected to Cut Rates; Not Many In Support

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January 19
6:04 AM 2016

Many believe that the Bank of Canada will cut interest rates as soon as Wednesday and it's causing many in Canada to speak up against it. The exporters of Canada, those who would profit from just a decrease, don't even want it.

Bank of Canada Governor Stephen Poloz's supposed move to decrease interest rates will further encourage the Canadian dollar's fall and increasing exchange rate volatility. Many other economists and investors feel that the extremely low rates will distort the economy and will eventually turn Canada into a low-wage manufacturer supporting the US economy.

Jayson Myers, chief executive of Canadian Manufacturers & Exporters spoke to Bloomberg about the rate cut. "My advice right now would be to even take a look at increasing interest rates by a quarter of a point. Interest rates are low already. A little bit of dollar stability would be better."

Other than the potential damage it could bring to the economy, the rate cut could possibly affect the Canadian public in other negative ways as well. Canadian weekend newspaper The Globe and Mail outlined eight reasons why they felt a rate cut would be bad.

Among the reasons why, The Globe and Mail pointed out that the falling Canadian dollar would put pressure on inflation, causing a negative impact on seniors who live on a fixed income. It also penalizes those who are saving by putting pressure on savings account rates that have already been decreasing over the years.  

The Canadian dollar is already at a 13-year low against the US dollar. It's decreased 29 percent since Poloz took his position at the Bank of Canada in June 2013. Poloz defended his actions saying that his intention wasn't to weaken the currency but more so as a response to the falling oil prices.

Despite the poor outlook on the economy, there is still some growth occurring in the non-energy export sector taking advantage of the strong US economy and the weaker currency.

The Toronto Star reported that Bill Morneau, Federal Finance Minister, was optimistic about the state of the economy. He wanted foreign investors to not ignore the country even though its currency has been weakened. 

"We live in a fantastic country with abundant natural resources, of course, but also a highly educated workforce. And we have the room to make some significant investments to stimulate our economy and to create a more productive Canada over the long term."

January 20 is the expected date for the announcement of the rate decrease. Those are worried that if there is any further economic anxiety, it could ruin confidence in the currency and possibly push the country back into a recession. 

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