The Monthly Muse

Brought to you by Younker & Kelly

As part of our commitment to bring you relevant economic news on a regular basis – here is the latest installment of the Monthly Muse.

If you’ve been following the economy over the past month you will have noticed a few patterns, one pattern being the considerable decline in the price of oil. With the price per barrel dropping by more than 50% since June, this has left many speculating the impact it may have on the Canadian economy that relies heavily on the export of oil. We are already starting to see the effects it has had on some Canadian provinces such as Alberta where many oil companies have already begun massive layoffs. The ripple effect of declining oil prices can also be felt in other areas of the economy as well. A once booming housing market in Alberta has seen recent declines in the purchasing of homes. While it may be to early yet to speculate just exactly how much Canadians will feel the effects of dropping oil prices, we did see an unexpected rise in the price on Friday January 30th, where prices increased by more than 9%.

Another pattern you may have noticed was that the world’s central banks have begun to slash their interest rates in light of the latest Federal Reserve report. Stephen Poloz (Governor of the Bank of Canada) dropped the key overnight lending rate down to 0.75%, down from 1%. At first the major banks in Canada were reluctant to slash their rates as well but they ultimately reached a compromise and cut their rates by 0.15%. Taking their prime lending rates from 3% down to 2.85%. This came as a surprise to many as it was believed they would follow in the footsteps of the Bank of Canada and cut rates by 0.25%.

Lowering interest rates is done to stimulate the economy; it encourages consumers to borrow which in turn means more money is being spent. This is often a balancing act for central banks as keeping interest rates too low for too long can potentially have negative effects. We will continue to monitor this situation closely and keep you up to date. With so much uncertainty in the Canadian economy right now we see the U.S. economy having more growth potential this year.

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