Interest Rates Cut

Canada's central bank cut its trendsetting interest rate by a quarter point to a record-low 0.25 percent and said it will likely stay there through June 2010.

The Bank of Canada said Tuesday the global recession has intensified and it expects the recession in Canada will be deeper than anticipated.
The bank said it is conditional on inflation but they expect the rate to remain at its current level until the end of the second quarter of 2010. It said it is appropriate to provide more explicit guidance than is usual regarding its future path so as to influence rates at longer maturities.
The central bank said the economy will shrink by three percent this year, almost three times as much as the 1.2 percent it forecast as early as last January.

And it said the economy won't rebound nearly as strongly as it thought, saying any recovery won't start until the last three months of the year and growth next year will be more muted, at 2.5 percent instead of the 3.8 percent previously expected.

"In an environment of continued high uncertainty, the global recession has intensified," the bank said in its statement.

"Deteriorating credit conditions have spread quickly through trade, financial, and confidence channels. While more aggressive monetary and fiscal policy actions are under way across the G20, measures to stabilize the global financial system have taken longer than expected to enact."

Mark Carney, the head of Canada's central bank, has said that the success of America's bank bailout plan is crucial to economic recovery. Canada has avoided government bailouts and has not experienced the failure of any major financial institution. There has been no crippling mortgage meltdown or banking crisis north of the border where the financial sector is dominated by five large banks.
But Canada and the U.S. have the largest trading relationship in the world. The financial crisis and the global sell-off of commodities have hit Canada hard since last fall. Alberta's once-booming oil sands sector has cooled as every major company has scrapped or delayed some expansion plans.

Canada lost a record 273,300 jobs in the first three months of the year.

The latest interest rate cut means the bank has cut 4.25 percentage points off the overnight rate since it began the current easing policy in December 2007.

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