April 21, 2009

Bank of Canada lowers rate to 0.25 percent

Canada's central bank lowered its key lending rate as low as possible Tuesday, cutting it a quarter percentage point to 0.25 percent.

In a statement from Ottawa, the Bank of Canada cited continued high uncertainty and weaker-than-expected activity in all major economies as the rationale. Bank policy is that the one-quarter percent lower bound prevents short-term money market disruptions.

The statement said despite aggressive monetary and fiscal policy actions among the Group of 20 countries, they were taking longer to show progress than anticipated.

As a result, the recession in Canada will be deeper than anticipated, with the economy projected to contract by 3 percent in 2009, the bank said, raising its January estimate of 1.2 percent.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target, the bank said. Today's decision to lower the policy rate by 25 basis points brings the cumulative monetary policy easing to 425 basis points since December 2007.

Following the announcement, Canada's major banks announced they were lowering the prime lending rates by 25 basis points to 2.25 percent.