Are interest rates in Canada about to get even lower?

Bank of Canada Governor Stephen Poloz holds a news conference on the Bank of Canada's decision to reduce the overnight rate, Wednesday, January 21, 2015 in Ottawa. The looming economic threat of sliding oil prices is forcing the Bank of Canada to unexpectedly cut its trend-setting rate to three quarters of a percentage point from one per cent. THE CANADIAN PRESS/Adrian Wyld
Bank of Canada Governor Stephen Poloz at the last rate announcement on Jan. 21. CANADIAN PRESS/Adrian Wyld
[UPDATE: The Bank of Canada has held its key rate steady at 0.75%. Story here]

Economy watchers, banks and other lenders as well as many Canadian borrowers have their eyes on the Bank of Canada Wednesday morning to see if the central bank will again cut its benchmark interest rate.

Bank of Canada Governor Stephen Poloz will announce at 10 a.m. ET whether or not he will leave rates where they are, or cut them further to help bolster an economy labouring under falling oil prices.

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Before last week, experts were near unanimous in their opinion that Poloz would cut the Bank of Canada’s trendsetting rate by a quarter of a percentage point, to 0.50 per cent, a cut that would add to the quarter-point cut made in January when oil prices were still retreating rapidly.

That cut took many by surprise – and highlighted central bankers’ concerns about the health of Canada’s economy given the massive plunge in crude since the summer. Oil’s plunge prompted Poloz to cut the bank’s  benchmark overnight interest rate by one-quarter of a percentage point, to 0.75 per cent.

Canada’s central bank is responsible for influencing interest rates charged by private banks and lenders, as well as managing other high-level monetary matters to keep the financial system and broader economy stable.

The cut might not sound like much, but the surprise move is the wrong direction financial experts want rates headed in as consumers confront record debt loads. A fresh cut to interest rates will encourage more borrowing on things like variable mortgages, lines of credit and forms of debt.

MORE: Rate cut isn’t a green-light to borrow more, experts say

A new report from credit monitoring agency Equifax released on Tuesday showed Canadian consumers continuing to tap more credit, despite countless warnings about excessive leverage among many households.

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Standing pat

Still, the immediate risks for the national economy presented by plunging oil prices outweighed consumer debt considerations in January, according to the bank.

In a Feb. 24 speech however, Poloz suggested the rate cut had bought the economy some time to see how it reacted to lower oil prices. The speech led many experts to revise their expectation.

“Governor Poloz’s remarks made it clear that policymakers are happy to wait and see how the economy evolves before deciding on more stimulus,” Benjamin Reitzes, BMO economist, said ahead of the rate announcement Wednesday.

Most now foresee the Bank of Canada keeping its overnight rate where it is – for now, at least.

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