The Bank of Canada made the right decision in slashing the overnight rate by a quarter point to 2.25% this month, according to a web poll of Canadian CEOs conducted by COMPAS Inc.
The 122 business leaders who participated in the poll awarded the Bank of Canada an average grade of 76 out of 100 for the interest rate decision, which is in line with the panel’s historically positive view of the central bank. The CEOs also expect the Bank to cut interest rates a further quarter point to 2% in January.
But not all panelists agreed with the rate drop. “I think the interest rate cut was unnecessary in terms of our own Canadian economy. The Governor was just caught up in the worldwide frenzy of rate cutting. And the loonie paid the price,” wrote one.
The CEOs expect the Canadian dollar to appreciate by a few pennies against the greenback over the next couple of months to around US81¢. (The dollar settled at US77¢ on October 28.) A few respondents pointed out demand for petroleum exports could increase during the winter, pushing the dollar up.
The panelists also suggested policy initiatives for the Bank to take, such as more aggressive action to boost lending. “The Bank of Canada has to force the banks to loosen up the credit [markets], and one point more on prime or one less won’t matter when the banks are scared to lend money,” wrote one respondent.
Another said falling oil prices are damaging the viability of oilsands projects, but the low dollar means opportunity for manufacturers. “Our manufacturing sector needs extreme emphasis and emergency help developing new world-class innovative products, which can replace oil revenues and take advantage of the low Canadian dollar,” wrote the CEO.