Bank of Canada Cuts Key Interest Rate to 0.5 Percent

When it chopped the rate in January by a quarter point, the big banks also passed on a cut of 0.15 of a percentage point to their customers then, too. The five biggest chartered banks moved quickly to lower their prime lending rate, which affects financial products including variable mortgages and lines of credit, but by only 15 basis points.

The Bank of Canada hopes the latest cuts will stimulate a slightly exhausted Canadian economy, specifically in the business sector.

And many consumers are more focused on the impact of a falling dollar, said Consumers’ Association of Canada president Bruce Cran, who said U.S.-bound vacationers are being hit hard.

The Bank stopped short of saying Canada officially slipped into a recession.

Cooper said the spread between the Bank of Canada’s overnight rate target and the bank prime rate will eventually shrink, but probably not until interest rates are much higher than where they are today.

The one potential bright spot for Canada is the US economy. “If the doctor says you need surgery to avoid death, the side effects usually don’t deter you, you just go ahead and manage them somehow”, he said during a panel discussion at a Bank of worldwide Settlements meeting on June 28.

A recent report from CIBC Deputy Chief Economist, Benjamin Tal, said that a Bank of Canada rate cut is unlikely to help boost the economy by increasing spending but would cause the loonie to fall further, potentially making exports more attractive.

“Business investment will remain a source of drag, however, as the energy sector continues to adjust to low oil prices”.

Bank of Canada governor Stephen Poloz has spoken about a “neutral zone” for monetary policy, meaning inflation is at or is expected to reach its target within a reasonable timeframe and financial stability risks (household indebtedness principally) are evolving in a constructive manner.

“Otherwise I think the bank will cut again”.

Canada’s dollar, known as the loonie for the image of aquatic bird on the $C1 coin, slid as much as 1.8 per cent.

New Zealand’s currency declined to its lowest in five years after prices at an auction of milk – the nation’s major export – fell. While it projects 2015 growth at just over 1 percent, for the next two years it is anticipated to rebound to 2.5 percent.

For the housing market, where the cheapest mortgages in decades have led to record consumer debt burdens, the bank reiterated its view there’s no bubble.

As with the January cut, the new reduction is unlikely to fully flow through to the banks’ lending rates.

INVESTMENTS: People stashing their money in high-interest savings accounts and market-linked GICs – instruments that are both tied to the prime rate – could see lower returns, according to Penelope Graham of RateSupermarket.ca. But the central bank expects the economy to pick up steam in the second half of the year.

After four monthly declines in GDP and weaker-than-expected exports, many economists were calling for a rate cut.

“The non-resource track for growth will begin to dominate in the third quarter”, policy makers said, predicting the economy will expand by about 1.5 percent in that period.