Canada In Recession – Bank of Canada Confirms With Deep Rate Cut

July 1958, that’s how far back you have to go to find interest rates this low following the unexpected deep rate cut by the Bank of Canada this morning. The Bank of Canada slashed its benchmark lending rate by 75-basis-points which brings a total cut of 150-basis-points over the last two months. This proactive move by the BOC confirms what many have believed for some time, Canada is indeed headed for recession as the overall global outlook continues to deteriorate rapidly.

“The outlook for the world economy has deteriorated significantly and the global recession will be broader and deeper than previously anticipated … While Canada’s economy evolved largely as expected during the summer and early autumn, it is now entering a recession … The recent declines in terms of trade, real income growth, and confidence are prompting more cautious behaviour by households and businesses.”

With the next Bank of Canada meeting expected on January 20th, some are already wondering if another cut could be forthcoming. Factors that will likely be considered when weighing another rate cut in the new year are a pending bailout of the auto industry in the U.S. and measuring what impact that will have on the Canadian auto industry and jobs. In addition, the upcoming Christmas retail season will also be a key guidepost for measuring consumer confidence. If consumer confidence dips lower than expected, it is reasonable to assume that more rate cuts could be on the agenda by the time the BOC convenes at their next meeting.

Without a federal budget being tabled until January 27th, in many ways the Bank of Canada is left to do much of the economic heavy lifting on its own. While the Bank of Canada deserves much kudos for taking aggressive action, now the onus is on the banks to pass on these rate cuts so relief can trickle down to Canadian consumers.

Related News:
Canadian Dollar Falls as Central Bank Cuts Borrowing Costs

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