As oil prices continue to plummet and the economy fails to adequately adjust, Bank of Canada (BoC) governor Stephen Poloz has been displaying his considerable patience.
Poloz has decided to stay passive on expectations and the policy council at the nation’s central bank have opted to leave interest rates at rock bottom. Analysts now believe the key rate won’t be changed in 2016 and probably won’t be until well into next year.
The governor’s commendable optimism is not shared by all, as paltry corporate capital outflow, disappointing employment data and a decline in household spending darken the short-term sentiment in Canada’s financial circles.
However, long-term, most private sector analysts see some light at the end of the tunnel as a planned monetary stimulus package has been pledged by the government, due to be injected in late August.
Poloz said in a press release yesterday, “Looking at the latest reports it’s clear that the recent oil price decline has triggered some fairly uneven and unpredictable adjustments in the economy. We are positive the market will even out with the federal government helping out with some stimulus, this is not a long term issue rather a knock on effect from various random disruptions like the recent fires.”
CITIC Tokyo International, a large trading firm with interests in Canadian crude, seemed to mirror that sentiment as they released their investment report for the second half of the year, showing no change in their outflow strategy.
Other investment firms, surveyed by Bloomberg, revealed they thought the crude industry would bounce back in Q3 as production rebounds to normal levels due to reconstruction.
As the oil sector recovers it could mark a bounce back in the nation’s overall gross domestic product in the next quarter.
BMO Capital Markets chief analyst Benjamin Reitzes said, “The wildfires earlier on in the year obviously caused nervousness in the market and that has been accounted for in last quarter’s GDP figures, but that is simply a transitory drop and there is more than likely going to be some offset as we move forward into the second half of 2016.”
Reitzes added, “We should be seeing a 2 or 3 percent improvement if the recent Monetary Policy Report is anything to go by.”
Much of the recovery will hinge, as ever, on Canada’s biggest trading partner the United States. According to several key indicators the U.S. is heading for a recovery in the coming months; however the BoC is still expected to keep a freeze on interest rates until their own economic growth is back up to full speed.
