Monday, December 14, 2015

So, it’s not the lower dollar only?

The saga about what way the Bank of Canada may choose to revive the weak Canadian economy continues. We’ve been discussing the recent skepticism of Carol Wilkins, Canada central bank’s senior deputy governor, about some European countries’ introduction of negative interest rates. Ms. Wilkins said in mid-November that “It’s too early to tell how effective negative rates are at creating additional demand.” She also suggested that, maybe, it was a better idea to play with the exchange rates.

In about two weeks after these suggestions, the expectations started appearing that it could indeed be the lower dollar which could save the Canadian economy. Several investment banks issued forecasts that the dollar could drop further.
And eventually, last week, the Bank of Canada Governor Stephen Poloz said that the Bank is updating” its framework for the use of unconventional monetary policy measures”. Among the “unconventional measures” he actually mentioned was “moving the policy rate below zero”. He said that the Canadian economy does not need “unconventional measures” now and that it will need them in some “unlikely event”. But we could be quite certain that if a Governor of the most careful and reserved institution in the country calls some desperate measure by its name, it means that the “unlikely event” may happen and that the said measure is very much on the table.

On the background of the 20% plunge of the oil price over the past weeks, with forecasts that it could go to as low as $20/barrel, the Bank of Canada is likely considering all kinds of options. It’s not to say that the Canadian dollar will not decline further. But it may not be enough to boost the economy.

Ukrainian Credit Union Limited

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