From our very own Dr Sherry Cooper:
The Bank of Canada cut its overnight rate target by 25 basis points to an historically low 0.5 percent today. The loonie immediately plunged to 77.5 cents U.S., down a full cent. The disparity between monetary policy in Canada and the U.S. is especially evident today as Janet Yellen, Chair of the Fed, is testifying before Congress this morning stating that she expects to raise interest rates in the U.S. this year.
The Bank of Canada judges that the underlying trend in inflation is about 1.5 to 1.7 percent, below its 2 percent target. Moreover, they substantially reduced their estimate of economic activity this year and argue that the lower outlook increases the risk of further declines in inflation. Earlier this year, the Bank argued that economic growth would revive from the Q1 contraction in the second quarter. This clearly did not happen. Following a 0.5 percent decline in real GDP growth in the first quarter, the Bank is now estimating a further 0.6 contraction in Q2, bringing their forecast for 2015 growth to a mere 1.1 percent , down from their earlier forecast of 1.9 percent.
The disappointment has been in the energy sector and weaker-than-expected exports of non-commodity and no-energy products in the second quarter despite the decline in the Canadian dollar. The Bank points to a slowing in the global economy to explain the weak trade numbers. The U.S. economy experienced considerable weakness earlier this year owing to transitory factors.
Read the full article here: http://sherrycooper.com/bank-of-canada-cuts-rates-25-bps-canadian-dollar-plunges/
