Bank of Canada cuts rates again as economy contracts

[nuckin_futz]

Bank of Canada cuts rates again as economy contracts

By Randall Palmer and Leah Schnurr

OTTAWA (Reuters) - The Bank of Canada cut its key interest rate by 1/4 percentage point to 0.5 percent on Wednesday, saying an unexpected economic contraction in the first half of the year had added to excess capacity and put downward pressure on inflation.

"Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target," the central bank said in the interest rate decision that accompanied its quarterly Monetary Policy Report.

Bank of Canada Governor Stephen Poloz had expected a recovery by now from the oil price crash that hit Canada's oil-exporting economy in the first quarter, but that projection proved far too optimistic. The bank now expects the economy to have shrunk at an annualized 0.5 percent in the second quarter instead of growing by 1.8 percent as Poloz had projected in April.

The market had been split on whether the bank would cut rates for the second time this year, after a surprise cut in January designed to counter the dive in oil prices.

The bank did not use the word "recession" but the projection of negative growth in both the first and second quarters meets the most widely accepted definition of recession.

The bank said excess capacity in the economy grew significantly in the first half and would continue to do so in the third quarter, even with expected economic growth of 1.5 percent. It therefore pushed back to the first half of 2017 its projection of when full capacity will be reached and inflation return to its 2 percent target. Its previous projection had been the end of 2016.

The bank acknowledged elevated vulnerabilities from a hot housing market in Toronto and Vancouver and from rising household debt - a key factor that had had some economists calling for no rate cut - but said the economy was undergoing "a significant and complex adjustment" and required additional stimulus. It still sees a soft landing in housing.

Perhaps the biggest disappointment for Poloz, former head of the federal export agency, has been the "puzzling" weakness in non-energy exports, which he had hoped would help overwhelm the negative effects of lower oil prices on business investment and incomes.

But the bank said its base-case projection assumes "that this unexplained weakness is temporary and that the relationship between exports and foreign activity will reassert itself in the coming quarter".

The bank said the main dangers to its inflation outlook are a larger-than-expected decline in oil and gas investment, weaker non-energy exports, imbalances in the Canadian household sector and stronger U.S. private demand.

https://ca.finance.yahoo.com/news/bank-canada-cuts-rates-again-140301452.html

********************

We've seen 4 consecutive months of negative GDP. Though it's not official yet, we are in a recession. Wonder how Harper spins this mess as a positive with an election looming?

The drop in commodity prices, especially oil has hurt big time. Oil prices not likely to improve now that Iranian oil will be back on the market soon.

The weakness in exports is very confusing. Very little to be encouraged about here.

Canada seems to be in the same quagmire as Australia and New Zealand. Slowing economy's combined with housing bubbles. The drop in rates in all three locations will do nothing to stop surging housing prices.

The Loonie was crushed to a 52 wk low of 1.2929 against the USD. Pretty much nothing stopping it from dropping further as the US is indicating at least 1 rate hike before the end of the year.

[theminister]

Unsustainable.

The rates will be due for a major correction in the next few years.

Hopefully.

[Baer.]

Yeah this is starting to get out of hand... Four months in a row, that kinda scares me...

[taxi]

The drop in rates won't affect housing in Vancouver. It's not oak locals causing this madness. It's foreigners paying in cash.

I wonder of this will cause mini bubbles in smaller cities though. Port Moody housing bubble?

[Chalky]

Unsustainable.

The rates will be due for a major correction in the next few years.

Hopefully.

Unsustainable indeed. You should hope for a series of minor corrections though, major corrections are generally bad.

[Gurn]

I already pay services fees for stashing my money at the bank, I'll be dammed if I'll give them interest points as well. Drop those interest rates too much more and I'll take all $ 100 of my savings out of there.

[Chalky]

This has been happening as predicted. This Financial Post article http://business.financialpost.com/news/economy/canadas-biggest-banks-say-the-worst-is-to-come-for-the-canadian-dollaris from Oct 2014.

From above

Perhaps the biggest disappointment for Poloz, former head of the federal export agency, has been the "puzzling" weakness in non-energy exports, which he had hoped would help overwhelm the negative effects of lower oil prices on business investment and incomes.

I think puzzling is too strong a word. It's not that puzzling. When the global campaign against Russia and Iran's economies kicked into overdrive Canada was complicit in the massive oversupply of oil globally. This was done to keep the price artificially low in order to keep pressure on Russia and Iran, who can't make miney at the curernt price levels. Canada, along with the USA and Saudia Arabia (as well as others) aggravated the imbalance and that is why our non-energy exports could not overwhelm the negative effects of the lower oil prices.

The Fed Cons have had a negative impact on our economy and the Bank of Canada is scrambling to react.

[elvis15]

I'll be keeping a closer eye on mortgage rates over the next while I think, as I re-upped mine earlier this year at a variable rate and won't want to get stuck if it rises. We'll see what the economy does.

[Mr. Ambien]

About to be stuck at 0% like the US because populace doesn't seem to think recession is part of a healthy economy. At that point, what then?

[John Tortorella]

About to be stuck at 0% like the US because populace doesn't seem to think recession is part of a healthy economy. At that point, what then?

This

To lower dependance on both fossil fuels and other countries a recession is to be expected.

[Sapper]

We can thank all those right wing zealots who keep drinking the coolaid and spreading fear about any other polical party. Under Harper we have seen Canadian companies post record profits while at the same time the near elimination of the middle class - record child poverty - record household debt. In typical fudget budget fasion they raid EI and gut their workers sick plans to call it a surplus.

Harper may not share any blame for the oil prices but he does need to take ownership for gutting the middle class. If you have money to spare invest in Walmart - Box grocery stores and payday loan companies. That's were the working poor are spending all their money. When interest rates go up ( and they will ) - and a huge portion of canada goes bankrupt we will see several generations of wealth vanish - litterly pushing us back a few centuries in quality of life.

Right wing goverments always seem to leave office with the books in a state of disaster and those that replace them spend most of their time trying to clean up the mess left behind. Lucky for the right wing their voter base is limited in though and easily distracted.

[Mr. Ambien]

We can thank all those right wing zealots who keep drinking the coolaid and spreading fear about any other polical party. Under Harper we have seen Canadian companies post record profits while at the same time the near elimination of the middle class - record child poverty - record household debt. In typical fudget budget fasion they raid EI and gut their workers sick plans to call it a surplus.

Harper may not share any blame for the oil prices but he does need to take ownership for gutting the middle class. If you have money to spare invest in Walmart - Box grocery stores and payday loan companies. That's were the working poor are spending all their money. When interest rates go up ( and they will ) - and a huge portion of canada goes bankrupt we will see several generations of wealth vanish - litterly pushing us back a few centuries in quality of life.

Right wing goverments always seem to leave office with the books in a state of disaster and those that replace them spend most of their time trying to clean up the mess left behind. Lucky for the right wing their voter base is limited in though and easily distracted.

Right, this is exactly the same crap Americans said before they elected Obama. Of course, Obama has had the same exact economic policies as Bush. Interest rates are still unwavering, the market goes bananas at the terrible thought of rising interest rates, and really there's nothing for the US to do but yet another round of QE.

It's interesting though if one thinks it's the right wing, especially with the way Wynne and Clark run their respective provinces. Ontario's credit rating downgraded two or three times since Liberals took over there because they can't control how much they spend. (makes me happy I pay so much less in taxes in Alberta than I did in Ontario)

I guess Canada is due for a round of phony "hope" and "change" since we like doing things the American way.

[Sapper]

Right, this is exactly the same crap Americans said before they elected Obama. Of course, Obama has had the same exact economic policies as Bush. Interest rates are still unwavering, the market goes bananas at the terrible thought of rising interest rates, and really there's nothing for the US to do but yet another round of QE.

It's interesting though if one thinks it's the right wing, especially with the way Wynne and Clark run their respective provinces. Ontario's credit rating downgraded two or three times since Liberals took over there because they can't control how much they spend. (makes me happy I pay so much less in taxes in Alberta than I did in Ontario)

I guess Canada is due for a round of phony "hope" and "change" since we like doing things the American way.

The right wing way has failed us all. A bucket of pucks couldn't do any worse than this crew. Anyone and any party that says working class people actually matter is a ray of hope ( not just those rich enough for income splitting or enough cash to invest in TFSA's ). Right now all of the right wing policies across Canada and provincially have led to de unionization of workers - stagnant and or lower wages - higher cost of living and oh yes - record profits. Im not suggesting the NDP would have the magic beans to fix it all - I am confident that anyone and anything but Harper is a ray of hope. If the best that Harper can offer is the status quo then he is offering zero hope to working class people not rich enough to invest and not poor enough for handouts ( ahem - we make up the majority of Canadians ... not the rich )

[Mr. Ambien]

The right wing way has failed us all. A bucket of pucks couldn't do any worse than this crew. Anyone and any party that says working class people actually matter is a ray of hope ( not just those rich enough for income splitting or enough cash to invest in TFSA's ). Right now all of the right wing policies across Canada and provincially have led to de unionization of workers - stagnant and or lower wages - higher cost of living and oh yes - record profits. Im not suggesting the NDP would have the magic beans to fix it all - I am confident that anyone and anything but Harper is a ray of hope. If the best that Harper can offer is the status quo then he is offering zero hope to working class people not rich enough to invest and not poor enough for handouts ( ahem - we make up the majority of Canadians ... not the rich )

Higher cost of living is going to happen with inflation. How do you propose cost of living is going to go down when absolutely nothing is going down? Wages aren't going down, taxes aren't going down, spending isn't going down, the price of goods aren't going down. nothing is.

And it's funny that this thread is about rate cutting.. what do you think that does to the housing market? And do you really think under the NDP or Liberals rates would rise? Do you think the prices of houses would fall?

I'm glad you think anything but Harper is a ray of hope, like I said, the pieces are falling in line for a Canadian version of Obama from people who are quite clueless. I'd much rather have Harper than "anything else". At least Harper isn't &^@#ing with my paycheque, I'm not sure about how the NDP would run things, and I sure as hell don't trust Liberals.

[Sapper]

Wages have gone down in many cases. You hold on to your "better to go broke with Harper" for me Im ready to give someone else a shot. Its already in the toilet and what Harper is doing is clearly failing. If your pay is Harper proof then your in the 1% of our countries riches and no wonder your support him. Everyone else has been impacted by his rule. And your hitting the fear propoganda right on note - Fear everything not Harper - just like in the states with the tea party crying to blues.

In the short term the rate cuts will drive up house prices - putting them out of reach of working class folks and putting people deeper in debt. I am not in favor of the rate cuts as all it does it promote people spending more on credit than they can really afford. Its voodoo economics to think that spending on credit will boost the economy. Restoring the balanace of power between workers and corperations so that we see a healthy middle class return should be a priority.

And with this rate cut - only a tiny porition of it was passed on in rate cutes at the bank .... the banks profits just went up today. The lower canadian dollar that occured with the rate cut drove up the prices of nearly everything we purchase. Heck gas shot up a dime a litre with oil at near 9 year lows. But hey lets go with the destroy us all parties of the right wing cause lord knows better the pain we know than any hope at all right?

[Realtor Rod]

I don't like this one bit. June was the 4th busiest month ever in Fraser Valley real estate sales. Nothing is adding up which usually means something bad is about to happen. Anyone know how long term bonds have reacted?

[Mr. Ambien]

Wages have gone down in many cases. You hold on to your "better to go broke with Harper" for me Im ready to give someone else a shot. Its already in the toilet and what Harper is doing is clearly failing. If your pay is Harper proof then your in the 1% of our countries riches and no wonder your support him. Everyone else has been impacted by his rule. And your hitting the fear propoganda right on note - Fear everything not Harper - just like in the states with the tea party crying to blues.

In the short term the rate cuts will drive up house prices - putting them out of reach of working class folks and putting people deeper in debt. I am not in favor of the rate cuts as all it does it promote people spending more on credit than they can really afford. Its voodoo economics to think that spending on credit will boost the economy. Restoring the balanace of power between workers and corperations so that we see a healthy middle class return should be a priority.

And with this rate cut - only a tiny porition of it was passed on in rate cutes at the bank .... the banks profits just went up today. The lower canadian dollar that occured with the rate cut drove up the prices of nearly everything we purchase. Heck gas shot up a dime a litre with oil at near 9 year lows. But hey lets go with the destroy us all parties of the right wing cause lord knows better the pain we know than any hope at all right?

Where have wages fallen, especially in light of increasing minimum wages across the board and inflation?

[Sapper]

Wages that have not matched the cost of living are considered to have fallen. Only the right wing would brag that wages have gone up a few % when in fact with cost increases your wages have fallen.

http://www.huffingtonpost.ca/2015/01/22/income-cities-provinces-canada_n_6524982.html

On this link we see that during the 6 year reporting period that Abbotsford/Mission/Victoria/Vancouver areas all saw a reduction in median employment income.

and

http://www.huffingtonpost.ca/2011/11/24/canada-average-weekly-payroll-earnings-september_n_1111805.html

Even though the second story is from 2011 it remains true. Wages have fallen so far behind that most workers would double digit raises for several years just to get back to were they were in in the 80's/90's. The working poor and the middle class have been hardest hit.

And the death of the middle class is the real problem we face. It is not by coincidence that we see record corperate profits and record household debt in the same news these days

http://www.huffingtonpost.ca/2013/06/29/household-income-canada_n_3521688.html

[Guest]

Where have wages fallen, especially in light of increasing minimum wages across the board and inflation?

Higher cost of living is going to happen with inflation. How do you propose cost of living is going to go down when absolutely nothing is going down? Wages aren't going down, taxes aren't going down, spending isn't going down, the price of goods aren't going down. nothing is.

And it's funny that this thread is about rate cutting.. what do you think that does to the housing market? And do you really think under the NDP or Liberals rates would rise? Do you think the prices of houses would fall?

I'm glad you think anything but Harper is a ray of hope, like I said, the pieces are falling in line for a Canadian version of Obama from people who are quite clueless. I'd much rather have Harper than "anything else". At least Harper isn't ???? with my paycheque, I'm not sure about how the NDP would run things, and I sure as hell don't trust Liberals.

Wait, why would the cost of living increase if wages were increasing? the cost of living would increase if the rise in wages was outpaced by inflation. in other words, the cost of living is going up due to a decrease in real wages.

[Mr. Ambien]

Wages that have not matched the cost of living are considered to have fallen. Only the right wing would brag that wages have gone up a few % when in fact with cost increases your wages have fallen.

http://www.huffingtonpost.ca/2015/01/22/income-cities-provinces-canada_n_6524982.html

On this link we see that during the 6 year reporting period that Abbotsford/Mission/Victoria/Vancouver areas all saw a reduction in median employment income.

and

http://www.huffingtonpost.ca/2011/11/24/canada-average-weekly-payroll-earnings-september_n_1111805.html

Even though the second story is from 2011 it remains true. Wages have fallen so far behind that most workers would double digit raises for several years just to get back to were they were in in the 80's/90's. The working poor and the middle class have been hardest hit.

And the death of the middle class is the real problem we face. It is not by coincidence that we see record corperate profits and record household debt in the same news these days

http://www.huffingtonpost.ca/2013/06/29/household-income-canada_n_3521688.html

lol Huffington Post and their left wing think tank source.

Household debt is just a sign that people are becoming more stupid with what money they have. That's not a sign people are making less.

Secondly, why would you blame this on "right wing" governments if this apparently goes back to the 80s? Last I checked conservatives haven't been running the country for 30 years.

Thirdly, real wages are not a sign of wage inequality, they're a sign of productivity. Though, if you want to compare:

http://www5.statcan.gc.ca/cansim/a46?lang=eng&childId=3830010&CORId=3764&viewId=2

Productivity has been stagnant for a while now, so likewise, wages will be stagnant, especially for those at the bottom. Forcing wages beyond productivity levels is stupid, to say the least. Without innovation, there's way too much risk of economic collapse -- see: Greece. And of course, liberals wish to dump the most productive natural resource based productivity we have, without the innovation to sustain it. You guys are hilarious.

Fourthly, rich people seem richer because they get a lot of help from the government. Policies such as this, which have been around since before I was born, have benefited rich people the most, which would be a red herring to go deeply into with this topic.

Nonetheless, everyone has the opportunity to increase their wages according to even your criteria. Our household wages have far outpaced inflation because we know how to use our brains to make more money. It's not a sign of inequality that those who choose to do less, or refuse to use their head to make more money, make less. Wow, what a novelty. Only people devoid of economic knowledge believe that because the people who sit on low income jobs don't see rises of income comparable to others means that's inequality. They're not the ones out there taking economic risk to create production. They're mindlessly working unskilled jobs. Smart for teenagers, bad for adults, especially if they decided to make a family with their income situation.