Rate cuts have been the talk of the town – or rather, the world – as a number of global economies released their latest rate announcements this week.
While such action didn’t actually happen – the Bank of Canada kept its overnight lending rate at one per cent, where it has remained since September 2010, the European Central Bank at 0.25 per cent, and the Bank of England at 0.5 – the recent rounds of monetary policy read “what if” between the lines.
Looking For An Economic Kickstarter
Last month, the ECB halved their central interest rate to the current 0.25 per cent. At the time, ECB President Mario Draghi said the cut reflected pessimism over growth progress in the EU. Like Canada, the benchmark for healthy inflation in Europe is two per cent – and like here, levels have been woefully subpar; the new ECB forecast is 1.1 per cent for growth in 2014, and 1.3 per cent.
While this hasn’t led Europe to cut their rate for the second time in a row, Draghi admitted the option had been discussed, and that a negative rate could be put into play in the future to further stoke bank lending and consumer spending.
“We may experience a prolonged period of low inflation to be followed by a gradual upward movement … later on,” he stated Thursday to reporters. “We are monitoring developments closely and are ready to consider all available instruments.”
Could A Rate Cut Happen In Canada?
The consideration of “all instruments” has been a hot topic on Canadian soil too, as economists ponder the likelihood of a pending central bank cut to make up for our own inflation issues.
The lowering of rates could force the Loonie into a weaker position, which would provide relief for the floundering export industry, and further push consumer spending. Such a move would help perk inflation, which has suffered in part to competitive retailer discounting this year.
In this Wednesday’s announcement, the BoC flagged the inflation issue, and stated that while Q3 growth exceeded forecasted expectation, subpar exports are proving to be a growth barrier. GDP growth clocked in at only 2.7 per cent for the quarter.
The Bank also left off any reference to future rising rate bias, further fueling speculation that a rate cut may be an actual consideration. However, the general consensus remains that such a move would be a last resort for BoC Governor Stephen Poloz, who has stated his confidence in the economy’s ability to achieve capacity by 2015.
RateSupermarket.ca Expert Panel Calls For Low December Mortgage Rates
An unchanged Bank of Canada rate was also forecasted by RateSupermarket.ca’s Mortgage Rate Outlook Panel this week, which indicated that variable borrowing costs would remain untouched. Fixed rates, however, may experience slight discounting, as bond yields remain low – investors are still confident in Canadian economic growth and low central rates. As well, market fluctuations as a result of the U.S. Fed’s musings over quantitative easing seem to have subsided for the time being – the nomination of dovish Janet Yellen to replace Chairman Ben Bernanke has affirmed that government bond buying measures won’t subside until at least the new year.