EDMONTON REAL ESTATE: LENDING RATES
This morning the Bank of Canada governor Stephen Poloz made the unexpected announcement that the Bank of Canada cut lending rates by a quarter of a percentage point, citing the plunging oil prices as the reason. Considering that Canada’s main income comes from oil exports, which will be reduced along with investment and employment in the energy sector, the drop in oil prices are not helping the Canadian economy according to the Bank of Canada. The new rate is now 0.75% was originally at 1%, since the fall of 2010. This rate drop was not predicted by economist and has taken the market by surprise.
This move is significant and it shows how the Bank of Canada is concerned about the recent drop in Canadian oil prices and how this uncertainty can pose an effect on the Canadian economy. Recent oil prices have went below $50 US a barrel from $105 US in June 2014. This decline has weighed in significantly on the Canadian economy and considering the rate that they have dropped, it creates this uncertainty on the impact it will have on Canada’s economic outlook. The loonie has also changed from 1.1 cents to 82.6 cents US and is now at its lowest level since April 2009.
The Bank of Canada has also scaled back its original forecast for Canadian economic growth this year from 2.4% to 2.1% in 2015. Ultimately they believe that the GDP growth will be 2.1% and will rise to 2.4% in 2016. This revised growth forecast is based on the assumption that oil prices will average out at $60 US a barrel over the next 2 years. With oil prices going down, this could significantly increase the risks of inflation and financial stability in Canada.
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