What Are The Markets Facing?

The tight Canadian credit markets have remained a concern for the BoC. Therefore, the central bank will infuse another C$2 billion in liquidity into the market on April 17, when they purchase securities with treasuries. The MPC’s fretting has led to expectations that they will cut rates by 50 points at their upcoming April 22 meeting. Despite concerns over lending standards and a U.S. downturn, the Canadian economy has remained resilient. A strong labor market, built on the commodity boom has fueled domestic growth and saw the economy generate another 14,600 jobs in March. Likewise record oil prices have seen the physical trade balance reach a nine month high of C$4.9 billion, as energy exports have increased. Another positive sign for the economy is the recent tripling of expectations in factory shipments on higher automobile orders. Nevertheless, Governor Carney has cut rates 100 points since the subprime crisis started, as the U.S. slowdown is expected to eventually impact the Canadian economy. The only obstacle to a rate cut may be the upcoming inflation report, as rising energy and food costs have increased worldwide, leaving many policy makers reluctant to reduce interest rates. However, with current the current CPI level of 1.8% below the central banks target of 2% and expected to go lower, an uptick would not raise concerns for Canadian decision makers.