OTTAWA —Both Prime Minister Stephen Harper and the Canadian economy he has been put in charge of for the last decade is tanking, forcing the Bank of Canada to cut its key interest rate for the second time this year, citing a larger-than-expected first half contraction and a “puzzling” stall in non-energy exports.
The central bank lowered its benchmark overnight rate by a quarter percentage-point Wednesday to 0.5 per cent, blaming faltering global growth, disinflation and low prices for oil and other commodities.
The Canadian dollar fell more than a cent in the wake of the decision. Banks also cut borrowing costs, with Toronto-Dominon Bank cutting its prime rate Wednesday morning by 10 basis points to 2.75 per cent.
The bank stopped short of characterizing the economy’s first-half stall as a recession, even a mild one. But some economists say that is exactly what Canada is facing.
“I’m not going to engage in the debate over what we call this,” Bank of Canada Governor Stephen Poloz told reporter in Ottawa. “No doubt, we have worked our way through a mild contraction.”
The latest rate cut marks a sudden about-face by Poloz, who has repeatedly insisted that the economic hit from the oil price collapse would be quickly offset by surging non-oil exports, such as car parts, lumber and machinery and equipment. He had characterized his earlier January rate cut as “insurance.”
But six months later the rebound remains elusive, in spite of a much cheaper Canadian dollar, now worth less than 80 cents (U.S.).
The bank acknowledged in its latest forecast, also released Wednesday, that the failure to get a lift from non-energy exports is “puzzling.”
This is sure to further dampen Harper and Conservative government’s fortunes as they have slipped in the polls heading into an election this fall. It clearly benefits both the opposition NDP which seems poised to form the next government and even the Justin Trudeau Liberals who have struggling to come out of the shadow of the NDP resurgence.
