So, how low can the loonie go?
As a rough guide, Porter says, there’s a pretty decent correlation between the loonie and oil in recent years that has found that for every $ 10 decline or gain in oil’s price, the loonie goes up or down by about four cents.
So as soon as we know where oil’s going, we’ll have a clearer sense of where the loonie’s headed. But if oilpatch legend Jim Gray is right and oil could be going as low as $ 30, as he told the CBC’s Peter Armstrong in a fantastic interview this week, the answer may not be pretty, as that would work out to a loonie worth less than 70 cents US.
Ouch. Talk about a swan dive.
But the loonie wasn’t the only negative storyline in Canadian business news this week. Stephen Poloz grabbed international attention in a speech on Monday in which the central bank governor laid out new policy options in the bank’s toolkit should another financial crisis arise.
Although was quick to make it clear the bank wasn’t considering this drastic option any time soon, one new policy the bank said it would theoretically consider is to let its benchmark interest rate turn negative.
Effectively, that means commercial banks would be charged a nominal fee when they store money in the central bank — a strong disincentive to do so, and an inducement to put that money to work literally anywhere else.
The concept of a “negative interest rate” is a tricky one to wrap one’s head around, but it’s safe to say nobody is going to be paying Canadians to take out a mortgage any time soon, nor should savers expect to be charged for keeping cash in a savings account.
“The average person would probably keep their cash under their mattress,” is how Porter put it in this thoughtful explainer on the story by the CBC’s Justin Li.
And again, the bank is nowhere close to using its new tool. “I certainly hope we won’t ever have to use these tools,” Poloz said. “However, in an uncertain world, a central bank has to be prepared for all eventualities.”
While it sounds great in theory, the proposed legislation was short on details. Orazietti says the new legislation would cap the cost of cheque-cashing services, crack down on unfair debt collection, and implement a waiting period between loans for payday lenders, all of which sounds promising.
But it didn’t touch on one of the fastest growing and most expensive types of loans — instalment loans. There are calls for caps on the ultra high-interest rates. The government says it isn’t ruling it out.
In the meantime, here’s a day-by-day list of our most-read stories this week.