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Loonie plunges to post-recession low

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Published on July 17, 2015 with No Comments

Canada’s central bank cut interest rates for the second time in six months, highlighting how severely the oil-price collapse is crimping growth in one of the world’s most energy-dependent advanced economies.

The Canadian dollar fell to its lowest level in more than six years after the Bank of Canada cut its key interest rate and lowered its forecast for the economy.

The loonie ended the day at 77.40 cents US, down 1.09 cents from the previous day’s close, a level not seen since March 2009 when Canada was in the midst of a deep recession.

Bank of Canada Governor Stephen Poloz said that, based on the bank’s projection, the economy shrank in the second quarter after a first quarter decline, marking two negative quarters of growth. He said he wouldn’t refer to the downturn as a recession, because that will require more data, time and analysis.While the U.S. and most other Group of Seven countries stand to benefit from low oil prices because they consume more energy than they sell, Canada is a net energy exporter and relies heavily on the sector, which makes up about 10% of its GDP. Uncertainty in Greece and slowing economic growth in China have dragged down prices for everything from oil and coal to iron ore and gold. Oil prices, roughly half of what they were last year, are set to fall even further following this week’s deal to lift sanctions on Iran.The declines have sent ripples through economies that depend heavily on natural resources.

 

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