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Bank Of Montreal Joins Chorus Of Economists Predicting Interest Rate Cut

Darpan News Desk, 14 Jan, 2016 12:31 PM
  • Bank Of Montreal Joins Chorus Of Economists Predicting Interest Rate Cut
OTTAWA — The odds that the Bank of Canada will lower its key interest rate next week are rising, with some of the country's big banks now predicting a rate cut.
 
Economists at the Bank of Montreal joined what is a growing chorus of analysts Thursday in predicting the central bank will cut its key interest rate next Wednesday when it releases its updated forecast for the economy.
 
The Bank of Montreal cited low oil prices, a weak business outlook survey and recent comments by governor Stephen Poloz as reasons for its new forecast.
 
"The Business Outlook Survey showed the lowest investment and hiring intentions since the Great Recession," the Bank of Montreal said in a research note Thursday.
 
"The commodity sector's pain is spreading to the domestically-focused, non-resource parts of the economy, trumping the gains in non-commodity exports to the U.S."
 
The key overnight rate sits at 0.5 per cent, and expectations that the Bank of Canada will cut its rate target have been gaining momentum with the low price of oil.
 
TD Bank said Wednesday it was an "exceptionally close call" but predicted a rate cut.
 
Meanwhile, CIBC chief economist Avery Shenfeld said Thursday the odds have tilted in recent days and "are now ever so slightly on the side of seeing a rate cut in January, or April at the latest."
 
"That's not based on a recommendation to do so," Shenfeld said.
 
"At this point, we're concerned about risks of a runaway C$, believe the currency to be weak enough to do the job on the trade side, and see little if any benefit in terms of generating more debt financed private sector activity."
 
Desjardins senior economist Jimmy Jean noted the federal government may be speeding up infrastructure spending plans in an effort to boost the ailing economy.
 
"What is shaping up is a scenario where the government picks up the baton from the central bank," Jean wrote in a note to clients.
 
 
"This adds to the current stimulation offered by the currency, making a sufficiently strong case for the Bank of Canada to remain on the sidelines next week."
 
The Bank of Canada cut its key interest rate twice last year in an effort to cushion the impact of falling oil prices on the economy.
 
By cutting its target for the overnight rate, the central bank is trying to push down the interest rates charged by Canada's big banks, making it cheaper for companies to borrow money to grow their businesses.
 
A cut also likely means lower interest rates for variable rate mortgages, lines of credit and other loans based on the prime rate, likely to boost consumer spending.
 
But the banks have not passed on the full savings of the Bank of Canada's most recent rate cuts to consumers.

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