Suffering Canadian dollar fuels calls for central bank to stand pat on rates

Mon Jan 18, 2016 3:40pm EST
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By Leah Schnurr

OTTAWA Jan 18 (Reuters) - The Canadian dollar's speedy plunge to a 12-year low has fueled calls from some market and industry players for the country's central bank to hold interest rates steady, even as traders increase bets on a cut this week.

With weaker oil prices knocking the currency to new lows nearly every day this month, some are arguing another cut could destabilize the currency, doing more harm than good.

Rather than helping exporters, the loonie is now cutting into margins as U.S. clients demand cheaper prices, some experts said, adding that it is lifting input prices and weakening investment sentiment.

"A growing number of people are advising against a rate cut," said Stefane Marion, chief economist at National Bank Financial.

"Rarely do we see the currency as being probably an important point of discussion during a Bank of Canada rate decision, but I believe this is one of those times."

The median forecast in last week's Reuters poll was for the bank to hold on Jan 20. Seven of 40 analysts expected a cut.

Since then, markets have upped the odds of a rate reduction, putting the likelihood at 64 percent.

Rate cut expectations have risen as the price of oil , a major Canadian export, sinks further. Oil prices hit their lowest level since 2003 on Monday.   Continued...