Canada Lowers Rate, Second Time

123jump.com Staff
21 Oct, 2008
New York City

The Bank of Canada lowered its key lending rate 25 basis points to 2.25% for overnight lending. The second cut in rate this month follows the previous rate cut of 50 basis points on October 8. The central bank also lowered the economic growth rate to 0.6% for this and next year but not a recession.

[R]10:10AM New York – Canada lowered its rate for the second time this month.[/R]

The Bank of Canada lowered its key lending rate by 25 basis points to 2.25% for overnight lending. Weak global economic environment and falling prices of crude oil and commodities dragged has clouded the outlook for Canada.

The central bank also lowered its economic growth outlook to 0.6% in this year from 1% and for the next year to 0.6% from 2.3% estimate in July.

The second decline in interest rate in the month after the bank lowered its overnight rate by 50 basis points on October 8 as global economies slow down, credit conditions tighten and commodities prices have fallen sharply.

The central bank has lowered interest rate by 225 basis points since December of last year.

In the accompanying statement the central bank noted, “The weaker outlook for global demand will increase the drag on the Canadian economy coming from exports. Lower commodity prices will also dampen the outlook, working through a deterioration in Canada''s terms of trade to moderate domestic demand growth. The marked tightening in Canadian credit conditions in recent weeks will restrain business and housing investment.

The Bank expects growth to be sluggish through the first quarter of next year, then to pick up over the rest of 2009 and to accelerate to above-potential growth in 2010 supported by improving credit conditions, the lagged effects of monetary policy actions and stronger global growth.”

Core rate of inflation has been steadily declining from the third quarter of last year. The rate has declined from 2.2% to 1.5% at the end of second quarter.

Canada recently reelected minority government led by the conservative party but with a higher proportion of seats in the parliament. Stephen Harper was returned with 143 seats for conservative party, higher than previous election but fell short of 12 seats for a majority government.