To The Pointwith Boris Bozic
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1 Comments BOC Rate Cut & Loonie Heads South – What does it mean?

Article written by Boris Bozic on the 23 Jan 2015 in Canada

And if you’re a snowbird or you planned on spending March break in the U.S., it’s going to cost you a lot more.  The Canadian Dollar’s decline does not come as a surprise. The Loonie may be worth 82,81,80,79, 78 cents – it will all depend when and what time of day you read the blog.  The Loonie is referred to as the petro-dollar, so when the price for a barrel of oil falls by 51%; it shouldn’t come as surprise that the Loonie moves in lockstep.  What did come as surprise is the Bank of Canada’s decision to cut the overnight lending rate.  Some had predicted this could happen in 2015, but no one saw this coming so soon into the New Year.  It’s bit of shock to the system because the overnight lending rate has remained unchanged for over four years.  Every announcement from the Bank of Canada has been the same; “move on folks, nothing to see here”.  Well, there’s something to see now.

The cut to the overnight lending rate is not good news.  The cut was necessitated because of the fragility of the Canadian economy.  The Canadian economy grew by 2.4% in 2014.  The Bank of Canada has now re-forecasted its growth for 2015 to 2.1%, and 1.5% in the first six months.  Ouch!  Our economies dependence on natural resources has far reaching consequences. Oil equals jobs, jobs equal consumer spending, and consumer spending equals healthy real estate values. It’s a game of dominoes that the Bank of Canada would like to avoid.  So, a way to offset the some of the oil risk is to support other sectors, like manufacturing and exports.  Some pundits are suggesting that the Bank of Canada is manipulating our currency to make our products more affordable to external markets.  Others are suggesting that the Bank of Canada does not have the ability to manipulate our currency. For the benefit of doubt… let’s call it coincidence. The Canadian dollar decline came just in the nick of time to support other sectors of our economy, and to minimize the potential of oil becoming a contagion.  Whew, we sure got lucky.

Back in early December I posted a blog entitled,Move aside Mortgage, There’s a New Worrisome Word”. I’m paraphrasing, but the gist of the blog was that 2015 was going to be all about oil, all the time. However, I assumed that we would have some time to ease into the consequences of cheap crude. I assumed wrong. It’s here now, and we all have to deal with it. One of the first things we as consumers should do is maybe alter our way of thinking.  I know this may seem counter intuitive, but lower interest rates and falling gas prices may make you feel good today, but it may end up making you much poorer in the future.  If you’re looking for one stat to follow, try the unemployment rate. It’s the number that tells all.

Until next time,




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Barb Morgan @Twitter ID Website Reply

Boris what are your thoughts on whether any of the Banks will pass on the rate cute to their consumer Prime rate?

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