Canada cuts interest rate following falling oil prices

Global Business

The Bank of Canada surprised many economists by cutting its main interest rate by a quarter of a percent in January after a recent slide in oil prices caused a crisis of confidence in the Canadian economy. The country relies heavily on oil exports for growth, and economists have said sectors such as manufacturing and agriculture will now have to pick up the slack. CCTV America’s Kristiaan Yeo reported this story from Toronto.

Canada cuts interest rate following falling oil prices

The Bank of Canada surprised many economists by cutting its main interest rate by a quarter of a percent in January after a recent slide in oil prices caused a crisis of confidence in the Canadian economy. The country relies heavily on oil exports for growth, and economists have said sectors such as manufacturing and agriculture will now have to pick up the slack. CCTV America's Kristiaan Yeo reported this story from Toronto.

“The drop in oil prices is unambiguously negative for the Canadian economy,” Stephen Poloz, governor of the Bank of Canada said. “Canada’s income from oil exports will be reduced, and investment and employment in the energy sector are already being cut.”

The Bank of Canada sent the Canadian dollar tumbling on Wednesday, when it moved its benchmark interest rate for the first time since 2009, cutting it to 0.75 percent.

Poloz said this should help to offset the “instability” caused by oil losing 60 percent of its value in just six months. For Canada, cheap oil means energy sector cutbacks and less government revenue. Energy accounts for a quarter of all Canadian exports.

The change means Canadians will be spending less on energy, mortgages, and loans, and with stronger growth in the U.S. and a weaker Canadian dollar, Canada’s non-energy exports should see a boost.

“The rest of our exports that are not energy-related. Now all of a sudden, they’re much more competitive on global marketplaces so that gives a lift to obviously those exports and also a lift to household sectors,” economist Nick Exharos of the Canadian Imperial Bank of Commerce said. “So now, their debt burdens are a bit more manageable, they might have a bit more spending especially since they’re saving on gas prices as well.”