January 20, 2009

Bank of Canada cuts rate to 1 percent

The Bank of Canada announced Tuesday it had lowered its interest rate by one-half of a percentage point to 1 percent.

In a statement from Ottawa, the bank said the outlook for the global economy has deteriorated since its last cut to 1.5 percent on Dec. 9.

The bank said international advanced economies are in recession, but taking action.

There are signs that these extraordinary measures are starting to gain traction, although it will take some time for financial conditions to normalize, the statement said. Canada's economy is projected to contract through mid-2009, with real gross domestic product dropping by 1.2 percent this year on an annual average basis.

The bank predicted modest decreases in housing prices this year should cause core consumer price index inflation to ease, bottoming at 1.1 percent in the fourth quarter.

In response, Toronto-Dominion Bank and Bank of Montreal each announced they were cutting their prime lending rates by half a percentage point to 3 percent, the Globe and Mail reported.