Exporters and borrowers are celebrating the Bank of Canada’s 0.25% rate cut.
But “the rate cut by itself is not that big,” says Vincent Lépine, vice-president of global economic strategy, global asset allocation and currency management at CIBC Asset Management. He co-manages the Renaissance Optimal Inflation Opportunities Portfolio.
Regardless, “the surprise was really big. Why? We think it was to get the maximum impact on the Canadian dollar. The objective was to provide relief to exporters by improving competitiveness via a weaker [currency].”
As for stocks, the cut will help Canadian equities, “but only relative to other equities markets around the world,” Lépine says.
Shareholders should be more interested in the fact that the European Central Bank will be buying €60 billion in sovereign bonds per month. “Given the relative size of Europe, if you’re able to have a successful recovery, then the global economy as a whole would do a lot better, which would be much more supportive for commodity prices like oil,” he says. “This would be a positive for Canada.”
Still, debt-saddled Canadians are also cheering the news about Canada’s rate cut. But Lépine points out they’re benefiting more from lower energy prices – which spurred the cut in the first place.
Yield-hungry investors are not as happy. “Bond yields declined significantly a little bit ahead of, but also on, the news [of the cut].” Yet, future damage should be minimal because “what the bank announced had already been priced in, and the probability of having additional rate cuts is not that great.”