In a decision whose outcome has been highly anticipated in recent weeks, the Bank of Canada announced a cut to its interest rate, lowering the rate by 25 basis points to 0.5%. The news has prompted significant discussion among Canadian economic and political experts, who are analyzing the cut in terms of a variety of potential causes (both at home and abroad) contributing to a trend of slowing economic growth, as well as the potential for a cut to reverse that trend.
While the effects of a rate cut will largely play out on a macro-level scale, it seems prudent to ask: what do this cut, and the broader trend that spurred its implementation, imply for the immediate future of Canadian small business?
Dollar Declines
First and foremost, consider the effect on the Canadian dollar. Reacting to news of the rate cut, the dollar dropped below 77.5 cents U.S. This sets the stage for a proposed revitalization of export markets, but may be bad news for consumers who just saw the cost of living rise. If materials provided by your business' key suppliers are sourced out-of-country, your cost of goods (and the cost to consumers) will increase.
“The emerging big story this year appears to be the meaningful upward pressure on prices due to the weak Canadian dollar,” said TD economist Diana Petramala, who authored a recent report on the effect of currency value on retail markets.
Contrasting this assessment is the BoC's official statement on market conditions: "Outside the energy-producing regions, consumer confidence remains high and labour markets continue to improve,” the bank said. “This will support consumption, which will also receive a fiscal boost.”
Of course, the issue of spin works its way into this discussion fairly quickly. The BoC, of course, hopes to justify its move as a potential economic stimulator in the face of poor performance indicators. Other groups are more critical of the cut's potential effects, including feeding more growth in the already highly motivated real estate sector and creating a greater risk of overburdening Canadians with debt.
Time will tell how this policy decision affects the local and national economic picture for small businesses and their customers as well as the wider network of domestic and international partnerships that business owners must build to find success in their markets.
