Bank of Canada Cuts Rate to 1.5%


The Bank of Canada lowered its benchmark interest rate by more than anticipated to a half- century low and signaled more action may be needed as economic growth sputters amid a “broader and deeper” global slump.

Governor Mark Carney and his rate-setting panel slashed the target rate for overnight loans between commercial banks by three-quarters of a point to 1.5 percent, the lowest since 1958. T

Canada’s economy is now entering a recession,” the central bank said in a statement from Ottawa today, the first time it has made that assessment outright. The Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required.”

Since Carney said Nov. 19 that a recession was a possibility, reports have shown employment fell by 70,600 in November and housing starts on an annualized basis plunged 19 percent. Meanwhile, manufacturers such as General Motors Corp. are scaling back operations in Ontario, Canada’s industrial heartland, and lower commodity prices are paring investment in the western province of Alberta’s oil fields.

The European Central Bank trimmed its main rate by three- quarters of a point to 2.5 percent on Dec. 4, the biggest reduction in its 10-year history. The Bank of England that day chopped its rate by one percentage point to 2 percent. Canada’s decision comes a week before the U.S. Federal Reserve’s next meeting, followed by the Bank of Japan two days later.

Carney’s rate cut today was the Bank of Canada’s biggest since October 2001. He had already surprised economists with his decisions four times this year including twice in October.

Canada’s rate was 4.5 percent at the start of last December. Policy makers haven’t cut the rate below their 2 percent inflation target since that benchmark was established in 1993.


TradingEconomics.com, Bloomberg.com
12/9/2008 6:53:57 AM