Tuesday April 22, 2008 - 13:04:46 GMT
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CEP News - www.economicnews.ca
Bank of Canada Drops Overnight Target Rate to 3%
09:00 04/22 (CEP News) Ottawa â€“ The Bank of Canada sliced another 50
basis points from its key overnight lending rate Tuesday, bringing the
rate down to 3%, its lowest level since October 2005.
central bank cited global financial market turmoil and weakening growth
worldwide in announcing its decision, and said further rate cuts may be
on the way.
"Some further monetary stimulus will likely be required to achieve the
inflation target over the medium term," BOC said in its official
statement. That marked a change from the wording of the previous
statement in March, when the bank said further stimulus "is likely
required in the near term."
How big the next cut will be and when it will come depends on the
response of the economy to the rate trimming that has already taken
place, the Bank of Canada said Tuesday.
"Given the cumulative reduction in the target for the overnight rate of
150 basis points since last December, the timing of any future monetary
stimulus will depend on the evolution of the global economy and
domestic demand, and their impact on inflation in Canada," the BOC said.
There had been near-unanimous agreement among economists in advance of
the BOC announcement that the 50 basis point cut was on its way and
markets had fully priced in the adjustment.
Growth in the global economy has weakened, reflecting the effects of a
sharp slowdown in the U.S. economy and continuing dislocations in
global financial markets, the central bank said in its statement.
"Growth in the Canadian economy has also moderated as buoyant growth in
domestic demand, supported by high employment levels and improved terms
of trade, has been substantially offset by the fall in net exports."
The BOC said it is now projecting a deeper and more protracted slowdown
in the U.S. economy, and that will have â€śdirect consequences for the
Canadian economic outlookâ€ť with declining exports projected to exert a
significant drag on growth throughout 2008. Tightening credit
conditions will also squeeze business investment and consumer spending,
the bank said.
â€śNevertheless, domestic demand is projected to remain strong, supported
by firm commodity prices, high employment levels and the effect of
cumulative easing in monetary policy,â€ť the BOC added.
The central bank said it expects the Canadian economy to grow by 1.4%
this year, 2.4% in 2009 and 3.3% in 2010, and move into excess supply
in the current fiscal quarter. A gradual U.S. recovery, a return to
more normal credit conditions and accommodative monetary policy should
generate above-potential growth and bring the economy back into balance
â€śaround mid-2010,â€ť the statement said.
Inflation will remain below target this year and next, the bank
projects, with both core and total inflation moving back up to 2% in
2010 "as the economy moves back into balance."
The bank says there are both upside and downside risks to its inflation
projections, adding that "these risks appear to be balanced."
By Geoff Matthews, [email protected], edited by Nancy Girgis, [email protected]
(END) Â©CEP Newswires - Â©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca
Related recent stories: (08:15 04/22) CA Preview: Most Economists Expect 50 Point Cut to BOC Rate (Repeat) (08:13 04/22) Market Preview: Loonie and CGBs Unlikely to See Big Moves if BOC Cuts 50 bps (Repeat) (07:36 04/22) Tuesday's Events: BOC Interest Rate Decision, U.S. Existing Home Sales
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