DAVOS, Switzerland (Reuters) - The Canadian government will achieve its goal of a balanced budget in the coming fiscal year without resorting to spending cuts, Finance Minister Joe Oliver told Reuters on Wednesday, hours after a surprise interest rate cut from the central bank.
Citing a weaker oil price, the Bank of Canada put an end to the longest period of unchanged rates since 1950, cutting its overnight rate to 0.75 percent from 1 percent. It also slashed its inflation and growth forecasts for the coming year.
In an interview at the World Economic Forum in Davos, Switzerland, Oliver said the weaker outlook would not prevent the government from reaching a balanced budget in its 2015/16 fiscal year and vowed to do so without resorting to a spending freeze or cuts.
“I don’t think that’s necessary,” he said, noting that a weaker oil price had both positive and negative effects on the economy. “You take all that into account and we don’t have to get into cuts. We will honor our commitments and we will achieve a balanced budget, but our flexibility will be reduced.”
Canada is the biggest foreign supplier of crude oil to the U.S. market. The central bank said in its quarterly Monetary Policy Report that lower prices would have an “unambiguously negative” impact on the economy in 2015 and beyond.
Oliver declined to comment on the rate cut and would not be drawn on whether the government might consider tapping a C$3 billion contingency reserve to meet its budget goal, saying only that it was there for “unexpected and unavoidable” events.
He said he could not rule out steps to cool the housing market in Canada, but made clear that significant new measures were not on the cards.
“I have not precluded taking modest actions,” he said. “But we’re not going to do anything major that could have the very effect we’re trying to prevent.”
Reporting by Noah Barkin