It sure feels like the Bank of Canada is going to cut borrowing costs this week. The negatives outweigh the positives in the economy, and we know based on 2015 that Stephen Poloz’s Governing Council puts a greater emphasis on the here-and-now than it does on the theoretical threat posed by a near-zero interest rate. By the late morning Eastern time on January 20, the central bank’s benchmark could be 0.25%, matching the record low set during the financial crisis.
Analysts are split on what the Bank of Canada will do with its first policy announcement of 2016. Mark Chandler of RBC Dominion Securities predicts Poloz will opt to leave interest rates unchanged, but says he has a lot of time for those forecasting a cut. Douglas Porter and Avery Shenfeld, the top economists and Bank of Montreal and Canadian Imperial Bank of Commerce, respectively, say they think the central bank will drop the benchmark rate a quarter point. They also say doing so will be a mistake. Prices for credit assets tied to the Bank of Canada’s target imply traders think there is a 60% chance that Poloz will once again be moved to respond to persistent economic weakness.
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