Roundup: Canadian stock rises ahead of central bank's rate decision

Canada's main stock market in Toronto recovered broadly Tuesday on the eve of the interest rate announcement to be made by the Bank of Canada.

The Toronto Stock Exchange's benchmark Standard & Poor's/TSX Composite Index regained 60.07 points, or 0.50 percent, to close at 12,002.24 points. Seven of the index's eight main sectors rebounded into positive, while the energy group was rattled by falling crude prices.

Heavyweight advancers were banks and other financial stocks as investors and mortgage holders are anxiously waiting for the Bank of Canada's next adjustment on interest rates. Toronto-Dominion Bank added 1.84 percent to 50.29 Canadian dollars a share, and Manulife Financial Corporation went up 1.01 percent to 18.04 dollars a share.

Bank of Canada Governor Stephen Poloz is expected to reveal the bank's latest decision on interest rates on Wednesday morning. The central bank can choose to raise its benchmark rate, known as the target for the overnight rate, from its current level of 0.5 percent, lower it, or keep it the same.

Broadly speaking, the bank opts to cut its rate when it wants to juice the economy by encouraging spending and investment, and it raises its rate when it wants to pump the brakes on inflation and cool down an overheated economy.

After standing on the sidelines for years, Bank of Canada twice cut its rate in 2015 to help an economy that had been waylaid by an oil shock that's still underway. Taking that into consideration, some experts believe another cut to 0.25 percent could be in the offing.

Chief among the concerns with a lower rate: the housing market. Rock bottom interest rates have compelled Canadians to borrow more than ever before, and send house prices up in the process.

"A cut is a must, which will see a boost to the housing market and the country's exports," said Yan Liu with a Toronto law firm focusing on cross-border real estate practice and investment services.

"I think there's a good chance that the central bank will cut its key policy rate," agreed Mike Xie, managing director of Vancouver-based Doubleocean Financial Group. "Because the current rate in Canada is relatively low and the U.S. Federal Reserve rate hike is looming."

"A possible rate cut would serve to stimulate the sluggish economy, but wouldn't help much the resource sector or real estate amid the low oil prices and descending Canadian dollar," Xie told Xinhua.

Ottawa has moved repeatedly to clamp down on dodgy borrowers, but another rate cut "could fan a market with one hand that policymakers are trying to slowly tamp down with the other," said BMO economist Doug Porter.

Scotiabank economist Holt agreed with that assessment, saying "this risks courting a larger problem down the line" in the form of a housing bubble.

Some say a rate cut might not be the right fix. Cutting the rate to 0.25 won't lead to the bigger GDP that policymakers are hoping for, TD economist Beata Caranci said, because the central bank "can do little to alleviate the economic pain" in Canada's oil and gas industry.

Prior to Canada's rate decision, the International Monetary Fund has cut Canada's growth outlook for next year by the most of any developed economy in the world. The IMF said Tuesday it now expects Canada's GDP will grow 2.1 percent in 2017, versus its previous call for 2.4 percent growth. Its estimate for this year remains unchanged at 1.7 percent.

Meanwhile, the IMF said China's efforts to change structure from an economy led by exports and infrastructure investment to a consumption-oriented economy are among the factors that will continue to "weigh on growth prospects" this year and next.

Stock markets in Europe and Asia also rose as data showing China's economy grew last year at its slowest pace in a quarter of a century led investors to anticipating more efforts by Beijing to spur growth.

China's economy grew 6.9 percent year on year in 2015, in line with the official target of around 7 percent for the year, according to the data from the National Bureau of Statistics released on Tuesday.

The Canadian dollar was traded slightly lower at 0.6869 U.S. dollar, compared with Monday's closing rate of 0.6870 U.S. dollar. Enditem