Bank of Canada expects slow growth

April 24, 12:30 am

The Bank of Canada wisely cut its discount rate yesterday another 50 basis points to 3.0 % It also made it clear that it will likely cut the rate again in June because it now anticipates a more severe slowdown or recession in the US and a corresponding   negative impact upon Canadian employment. But the commercial banks were slow to respond to the central bank's cuts because of the widespread fear of further losses in the credit markets.
Given this semi-paralysis and the rigid unwillingness of the Federal Finance Minister to understand the role that supportive fiscal policy can play in reacting to a slowdown it seems clear that further rate cuts are needed in the months to come. There is plenty of room for this since contrary to the conventional wisdom in some circles the overall environment outside of the cartel world of energy and the speculative one of commodities the trend is still to disinflation. Just go to the shops in a big city like Montréal and have a look at the prices of goods on sale and the extraordinary bargains that are available as well as falling prices.

The oil price speculative bubble will collapse sooner or later and I expect prices to fall back toward 70 $ a barrel or less.Greater regulatory oversight over the futures market in energy is needed to ensure that consumers are protected from excessive economc rents derived from the options market in energy.As well, greater investment in public transportation ought to be a top priority for both economic and environmental reasons. Of the recessions in the US since 1948 most have lasted 11 months or less. If this holds true again and given the stimulus package in place and the cut in US interest rates one could expect recovery to begin late next fall and early winter in time for the inauguration of a new President.