Bank of Canada will cut interest rate again
Last week, the Bank of Canada cut its target for the overnight lending rate from an already low one per cent to 0.75 per cent, in light of the risk posed to the Canadian economy by slumping oil prices.
Economists had expected to hold the rate at one per cent, where it had been since September 2010, but governor Stephen Poloz said low oil prices were "unambiguously negative" for the Canadian economy as he announced the rate cut.
In an update released Monday, TD forecast that the downward trend will lead the Bank of Canada to cut the overnight rate by another 25 basis points to .5 per cent, before standing pat until the second half of 2016.
TD has also revised its economic outlook because of oil prices, which are trading at about $45 US a barrel. TD predicts they could temporarily drop below $40.
"As a consequence, we have trimmed our outlook for real GDP growth for 2015 to two per cent, down from 2.3 per cent in our latest forecast in December," the report said.
The bank predicts the U.S. benchmark price will average $47 this year and $65 in 2016, down from its December forecast of $68 in 2015 and $80 next year.
TD said that while consumers will get relief at the pumps, averaging a savings of $875 a family in 2015, that will be far outweighed by lower corporate profits and weaker income growth.
"Lower corporate profits will likely lead to a contraction in business investment and weaker employment growth relative to our December forecast," the TD report said.
The unemployment rate will rise to 6.9 per cent by the end of the year, and stand at 6.7 per cent at the end of next year, TD forecasts.
The Canadian dollar also stands to drop further — as low as 75 cents US in early 2016.
Alberta, Saskatchewan and Newfoundland and Labrador will bear the brunt of the downward trend, while Ontario, B.C., Manitoba and Nova Scotia all stand to benefit, the report said.