Interest Rates, the Bank of Canada s Performance, and the Loonie s Future

Transcription

1 , the Bank of Canada s Performance, and the Loonie s Future BDO Dunwoody Weekly CEO/Business Leader Poll By COMPAS in Canadian Business For Publication October 30, 2008 COMPAS Inc. Public Opinion and Customer Research October 30, 2008

2 1.0. Introduction The Bank of Canada earns high grades for its recent cut in the policy rate, according to the CEOs and business leaders on the COMPAS business panel. Looking to January, 2009, panelists expect another small cut to the policy rate down to 2%. By January, the loonie is expected to edge up slightly to U.S. 81 cents, possibly in the wake of increased winter-demand for petroleum exports. 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 Continued Strong Performance by the Bank of Canada Irrespective of its Governor, the Bank of Canada has earned consistently high marks for its performance, as shown in table 2a. It earned another high score for its October drop in the key policy rate, an average performance score of 76%. Looking to the future, panelists anticipate a further small drop leading to a rate of 2% in January, as shown in table 2b. They foresee the loonie s edging up slight to U.S. 81 cents, as shown in table 2c. 2

3 Table 2a: (Q1) 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? 1 Mean DNK David Dodge, December, David Dodge, May, David Dodge, July David Dodge February, May 2008 interest rate decision 78 4 October 2008 interest rate decision 76 3 Table 2b: (Q2) What do you foresee the Bank of Canada policy rate will be in January? 4 October 2008 prediction for January, 2009 Mean DNK 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? 2 Mean of performance scores for interest rates and exchange rate. August? 3 Mean of performance scores for inflation, interest rates, and exchange rate. 4 Wording in May 2008: What do you foresee the Bank of Canada policy rate will be in 3

4 (Q3) 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. Mean DNK 81 3 The following verbatims provide a nuanced sense of panelist opinion: It would appear that world leaders and economists have [lost all sense of direction.] Personally, the way things have been going, [I ve no more clue than them]. 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. The Bank of Canada has to force the banks to loosen up the credit and one point more on prime or one less won t matter When the banks are scared to lend money. The recession sets oil down past the 75cents/barrel tipping point for oil sands viability. Now our manufacturing 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. [My firm is] presently quoting many China projects through this strategy. As we get into winter and the demand for oil goes up so will the price. With that the Canadian dollar will get stronger. Media coverage seems to be overlooking the fact that a weaker loonie is helping the manufacturing sector and is increasing the value of oil to Canadian producers who deal in U.S. dollars. 4

5 The real effects of the world financial situation will not be fully evident till at least late January. Many decisions are being made by government for political and dogmatic reasons at the expense of the interests of the Canadian people in general. This is happening at all levels. The extent of the sub-prime and the effect on credit availability has been underestimated, causing what will be an extended recession that is also being underestimated. Much is being done to create confidence but too little too late. Again, the result of actions in trying to hide the extent of the problems caused by those same people. Lower oil will help somewhat and with a new president the oil cartel will lose some of its power. However, oil will again climb but slower than in the past. A cold winter will drive up natural gas prices, but consumer spending will be very small. The upcoming thanksgiving shopping session will be a disaster Methodology The COMPAS web-survey of CEOs and leaders of small, medium, and large corporations was conducted October 23-24, 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 122 are deemed accurate to within approximate 8.9 percentage points 19 times out of 20. The principal and co-investigator on this study are Conrad Winn, Ph.D. and Tamara Gottlieb. 5