Interest Rates: Bank of Canada Maintains Very High Confidence of Business Panel

Transcription

1 Interest Rates: Bank of Canada Maintains Very High Confidence of Business Panel BDO Dunwoody Weekly CEO/Business Leader Poll By COMPAS in Canadian Business For Publication October 26, 2009 COMPAS Inc. Public Opinion and Customer Research October 26, 2009

2 1.0 Overview The Bank of Canada continues to elicit enormous confidence from the CEOs and business leaders on the COMPAS business panel. Over the years, no institution has earned as much consistently high confidence from the panel as Canada s central bank. Panelists were asked to assess this week s rate decision and the Bank s overall performance. Key findings with respect to these and related themes are: An overwhelming majority believe that the rate decision is the right one; The performance score given the Bank for this decision is at least as high as any of the other performance scores given the Bank, all of which have been very high; The Bank earns a very high score for its performance over the past six months, at least as high as the very high scores that it has earned in the past; The Canadian dollar will be in the mid-90 s until the end of 2011, when it is expected to fall to U.S. $ 0.89; and In the judgment of the panel, the loonie s ideal value is U.S. $ These are the key findings from this past week s Internet survey of CEOs and business leaders on the COMPAS panel. The weekly business survey is undertaken for Canadian Business magazine under sponsorship of BDO Dunwoody LLP. 2

3 2.0 Details The ensuing tables display data with respect to the appropriateness of current rates (table a), how well the Bank of Canada performed in this rate decision (table b) and over the past six months (table c), the future values of the loonie (table d), and the ideal exchange rate (table e). Table 2a: (Q1) The Bank of Canada announced October 20 that its interest rate would be 0.25 %. Is this % Much too low 6 Somewhat too low 18 About right 73 Somewhat too high 1 Much too high 0 Don t know or no opinion 2 Table 2b: (Q2) On a 100 point performance scale, what score would you give the Bank of Canada for this interest rate decision? October 2009 interest rate decision 82 4 October 2008 interest rate decision May 2008 interest rate decision The wording in October 2008: The Bank of Canada lowered its key policy rate on Tuesday by a quarter of a point to 2.25% with hints from the Bank Governor of new cuts to follow. On a 100 point performance scale, what grade would you give the Bank of Canada for this decision? 2 The wording in May 2008: The Bank of Canada lowered its key policy rate by 0.5% to 3%, down from 4.5% in October. The half point drop followed another half point drop in March. The Bank of Canada normally changes its rate by 0.25%. On a 100 point performance scale, what grade would you give the Bank of Canada for this decision? 3

4 David Dodge, May, David Dodge, December, Table 2c: (Q3) On the same 100 point performance scale, what score would you give the Bank of Canada for its performance over the past six months? October May February July Table 2d: (Q4) Please give your prediction of what the Canadian dollar will be worth in U.S. cents (rounded to the nearest cent) October 2009 June 2009 At the end of At the end of At the end of At the end of At the end of At the end of Mean of performance scores for inflation, interest rates, and exchange rate. 4 Mean of performance scores for interest rates and exchange rate. 5 Wording for May and February 2008: On a 100 point school report card type scale, how would you score the performance of the Bank of Canada. 6 Wording in July 2007: Using a 100 point school report card type scale, what score would you give Bank of Canada governor David Dodge for his overall performance since being appointed to his post? 4

5 Table 2e: (Q5) What is the ideal value of the Canadian dollar relative to the U.S. dollar for business? (rounded to the nearest cent) October May October November July May October November November The following verbatims provide a nuanced sense of panel opinion: A par dollar hurts Canadian manufacturers but a par dollar levels the field and exposes inefficiencies. A common currency would be ideal. Bank of Canada rates are simply not flowing through the banks to business and consumers, so they may as well increase to close to what the banks are offering their clients. Bank of Canada should be prepared to take even more aggressive approach for the short-term due to rapid Canadian dollar appreciation. We are an export and manufacturing nation, therefore we have to support these vital sectors. 7 Wording in October 2008: The loonie fell to under 80 cents U.S. earlier this week. In early January, 2009, what do you predict the loonie will be worth in U.S. currency? For January, please estimate the value of the Canadian dollar in number of U.S. cents. 5

6 I have provided you with my thoughts on the value of the Canadian dollar relative to the US dollar over the time periods requested. It is a mixture of the current realities of the economy and wishful thinking. If I really could forecast the value, I would be a rich man. As to the Bank of Canada, they are doing what every major western industrialized country is doing and it is probably the only thing they can do. It is time for our policy makers to focus on a stable, strong currency rather than using a low dollar as a prop for over taxation, government deficits and uncompetitive manufacturing sectors and labour. As a taxpayer who has to consume goods priced at international levels, all of these are simply hidden subsidies. The US is in a trap of its own creation. Government deficits ultimately lead to a sinking currency. We experienced it over the last 25 years - they refused to learn from our mistakes and they will now pay the price. It will be like juggling chainsaws to keep the Bank of Canada rate at the right level over the next few years...i hope those in charge keep all their limbs, and ours too. Stability in monetary pricing is key. All of these currency price fluctuations are damaging to the economies of both Canada and the US. The Cdn$ is killing the Canadian recovery The Canadian manufacturing and export sectors need to find the ways and means to be competitive with their US counterparts without reliance only on the Canadian versus US dollar spread. The US Dollar will fall relative to other world currencies. Our government and Bank of Canada will unfortunately try to keep our dollar close to the US instead of close to the other world currencies 6

7 There is much talk about the strength of the Canadian dollar. However it is the weakness of the US dollar that is the problem. Unless Canadian businesses and labour work together to improve productivity, we will have greater resource GDP but less services and manufacturing. We need to adjust to the new realty of the North American economy and working at PAR to the US dollar will, hopefully, make us work more efficiently. We should have the same currency as the US all the time. 3.0 Methodology The COMPAS web-survey of CEOs and leaders of small, medium, and large corporations was conducted October 20-22, Respondents constitute an essentially hand-picked panel with a higher numerical representation of small and medium-sized firms. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of n=126 are deemed accurate to within approximate 8.8 percentage points 19 times out of 20. The principal and investigator on this study is Conrad Winn, Ph.D. 7