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2180 Steeles Avenue West,
Suite 204, Concord,
ON, L4K 2Z5

Phone:     905-761-7001
Toll Free: 1855-761-7001
Fax:          905-761-7005

Email: mortgageadvisor@rogers.com




9 July 2019

Growing loonie could make the BoC keep the interest rate unchanged

It looks like the central bank’s Governor Stephen Poloz may have a reason to worry about growing loonie tomorrow during the rate meeting.

Poloz has been monitoring the Canadian dollar thoroughly this year, as he’s one of the few central banks governors, considering a possibility of a rate cut.

This week, the loonie reached 76.62 US cents. In 2019, the currency was up by 4%, which means the Bank of Canada may take a pause from its more active tone. Higher currency is a particular concern for the national economy because of the household debt and exporters probably taking the largest hit from the increase.

“I believe we’ll hear more about the loonie”, noted Ian Pollick from CIBC. “We need to admit that a gradual shift from households and consumption to exports and investment is not happening soon and a higher currency only makes it more vivid”.

As a rule, the BoC doesn’t mention currency changes at its rate meeting, but sometimes it happens. The last time they pointed to this issue, was in October 2017, although the increase was larger.

At the same time, the Bank may explain the gain by a strong economic growth. According to the latest data, the economy showed much better results in Q2 than expected. Meanwhile, the U.S. growth was slowing. Canada is also facing a stronger price pressure, and the inflation remains near the BoC’s target 2% for more than a year already.

While most economists expect the Bank to take a pause for an uncertain period of time, Pollick predicts a rate cut in 2020, caused by the currency issues.

In addition to it, investors also believe there could be a cut during the next 12 months, but it’s still not as large as a 1% decline expected in the U.S.

Bank of Canada rate decision is tomorrow, July 10 and we will update you here and through our social media channels.

 

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