This article was posted in St. Catharines Standard.
It appears the Bank of Canada has a green light to lower its key interest rates aggressively next month if it wants to stimulate the economy, following another flat inflation report and the dramatic cut announced Tuesday by its American counterpart.
One of the pitfalls that Canada’s central bank wants to avoid is inflation, a possible long-term consequence if the economy becomes overstimulated.
But Canada’s inflation rate tumbled to its lowest level in six months in February to 1.8 per cent as the strong dollar continued to give consumers a break on everything from the automobiles they drive to the food they eat.
Meanwhile, the U.S. Federal Reserve’s 75-basis-point cut to its fund rate Tuesday disappointed some looking for more. But even so, the action – coupled with the rare weekend rate cut on Sunday – has opened the gap between the comparable Canadian and U.S. central bank rates to 125 basis points: 3.5 per cent in Canada as opposed to 2.25 per cent in the U.S.
“The Bank of Canada has the leeway to cut as they see fit, and it has a lot more options than the Fed,” said BMO deputy chief economist Douglas Porter. “They don’t have the same urgency to cut rates because the economy is much sounder and financial markets are generally in strong shape, but unlike the Fed, they don’t have to worry too much about inflation because of the strong Canadian dollar.” The Canadian bank’s next scheduled announcement date is April 22.