The Bank of Canada’s Rate Cutting Folly | FT Alphaville

MKTSTK: The Bank of Canada’s actions kind of got lost in the shuffle given the ECB’s stimulus efforts. The FT’s blog, Alphaville, provides a good run-down of the BOC’s policy change from Jon Hartley, co-founder of Real Time Macroeconomics (emphasis ours):

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Alphaville: Early this week, the Bank of Canada unexpectedly announced a change in its key benchmark interest rate for the first time in four years. However, rather than raising its benchmark interest rate as Fed has said it intends to do later this year, Canada’s central bank has lowered its overnight interest rate by 25 basis points to 0.75%.

Bank of Canada governor Stephen Poloz cited that the primary motivating factor in its policy decision was the lower price of oil which it claims are “unambiguously negative” for the Canadian economy. This view is flawed as the oil and gas industry contributes to less than 6% of Canada’s GDP, despite the country’s international fame for its oil sands.

The Bank of Canada also entirely discounts the positive economic impact that lower oil prices have for the Canadian consumer. Federal Reserve Chair Janet Yellen herself has said that “the decline we’ve seen in oil prices is likely to be, on net, a positive” for economic growth in the U.S. where the oil and gas industry accounts for 2.5% of GDP, a similarly small fraction of the broader economy…

…The Bank of Canada has cited some job loss data in the oil sector namely, that oil sands giant Suncor announced it intends to cut 1,000 jobs and reduce its 2015 spending plans in response to lower oil prices.

read more via The Bank of Canada’s Rate Cutting Folly | FT Alphaville.

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