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Bank of Canada cuts benchmark rate to 3%
Grant Surridge, Financial Post Published: Tuesday, April 22, 2008
Peter Redman/Financial Post
The Bank of Canada cut its benchmark interest rate by 50 basis points to 3% on Tuesday. Economists had expected the central bank to make such a move to soften the impact from a possible U.S. recession.
In response, the S&P/TSX Composite Index traded flat just before 11 a.m. EST, at 14,306.
The central bank said it "is now projecting a deeper and more protracted slowdown in the U.S. economy." Economic weakness south of the border will have direct consequences for Canada, the bank said, with declining exports likely to weigh heavily on economic growth.
The Bank of Canada now predicts the Canadian economy will grow this year at its slowest pace since 1992. The bank calls for 1.4% growth this year, 2.4% growth in 2009 and 3.3% growth in 2010.
Low inflation in Canada compared to the rest of the world has provided the Bank of Canada with the room to cut rates, economists said.
The bank said on Tuesday that the downside and upside risks to its 2% inflation target appear to be balanced.
The bank also said that "some further monetary stimulus will likely be required to achieve the inflation target over the medium term."
However, it went on to say that because it has reduced its benchmark rate by 150 basis points since December, the timing of further stimulus will depend on the "evolution of the global economy and domestic demand, and their impact on inflation in Canada."
This is the first time since 2001, when the Bank of Canada was also worried about a U.S. recession, the central bank has cut its lending rate by a full percentage point in six weeks time, noted TD senior economist Richard Kelly.
RBC senior economist Dawn Desjardins predicted another rate cut in June.
"We look for the [Bank of Canada] to lower the overnight rate in June to 2.75% and then... shift to the sidelines for the remainder of the year," wrote Ms. Desjardins.
Bank of Canada expected to make aggressive rate cut
Monday, April 21, 2008
The Bank of Canada is widely expected by economists to cut interest rates by one-half of a percentage point on Tuesday in a bid to give the economy a boost.
A cut to the overnight rate, which currently stands at 3.5 per cent, would mean lower costs for consumers on such things as variable-rate mortgages.
Many economists believe the central bank will make an aggressive rate cut on Tuesday in the face of weakness in the U.S. economy and relatively soft inflation here.
"While the Canadian economy has held up reasonably well through the first quarter of the year, the real issue is the outlook," said TD Bank economist Jacqui Douglas. "The weakness in the U.S. economy is eventually going to spill over into Canada, it's just a matter of time."
Last week's benign inflation report appears to give Bank of Canada governor Mark Carney room to make a deep cut on Tuesday.
A smaller increase in the price of gasoline meant Canada's annual inflation rate slid to 1.4 per cent in March — the lowest growth rate since January 2007. The core inflation rate, which is closely tracked by the central bank, was 1.3 per cent in March, down from 1.5 per cent in February.
The Bank of Canada will follow on Thursday with its semi-annual monetary policy report. BMO Capital Markets deputy chief economist Doug Porter said the central bank could cut its growth forecast for the Canadian economy for 2008 by half of a percentage point from the already-lowered outlook of 1.8 per cent it issued in January.
"In particular, the bank expected growth to rebound to a two per cent annual rate in Q2 (from 0.6 per cent in Q1), and that looks ripe for the pruning," Porter wrote in a commentary.
April 2, 2008
Hello Everyone!!!
Down, down, down…That’s where rates are going! Stay tuned for the officially announcement on April 22nd.
Just an FYI...the dates for the remainder of this year's Bank of Canada's meetings are as follows:
April 22, 2008
June 10, 2008
July 15, 2008
September 3, 2008
October 21, 2008
December 9, 2008
Recession is here
3/15/2008 2:20:00 AM ET
Boston Globe
The United States has already slipped into a deep recession that could be the most serious since World War II, said Martin Feldstein, president of the Cambridge group that is considered the official word on economic cycles.'The situation is bad, it's getting worse, and the risks are that the situation could be very bad,' Feldstein said in a speech yesterday at a financial industry conference in Boca Raton, Fla.
JPMorgan and the Federal Reserve rescue Bear Stearns.
Feldstein, president of the National Bureau of Economic Research and a professor of economics at Harvard University, said the chief causes of the shrinking economy are sinking housing prices, months of job losses, and turmoil in the financial markets.
The National Bureau of Economic Research is the official arbiter of when recessions begin, and it could still be months before the organization makes that determination. If it does, that would mark a formal end of six years of economic expansion.
Economists generally define a recession as two consecutive quarters of economic contraction, something that can only be measured after the fact. The US economy grew at a scant 0.6 percent rate in the 2007 fourth quarter.
Also yesterday, Macroeconomic Advisers, a St. Louis consulting firm run by several former Federal Reserve officials, said the US economy barely grew in January and predicted it declined by 0.7 percent in February.
Feldstein's remarks were punctuated by an extraordinary run of alarming developments yesterday, including surging oil prices, new worries about home foreclosures, and the near collapse of a venerable investment bank that sparked another rout in stock prices on Wall Street.
US investment giant yesterday morning received an emergency bailout loan for an undisclosed amount that was facilitated by the Federal Reserve Bank, which invoked a little used Depression-era measure to unleash the funds. Bear Stearns is in dire need of cash after it was forced to write off billions of dollars of losses in mortgage-related investments, and worried investors withdrew their funds.
Bear Stearns's stock lost $3.2 billion of value yesterday, almost half its market capitalization. The major stock indexes all posted steep declines, with the Dow Jones industrial average down 195 points to close below 12,000.
US oil prices, meanwhile, remained above $110 a barrel, after hitting a record $111 on Thursday, putting increasing strain on consumers and businesses alike. United Airlines and Continental Airlines raised round-trip fares by as much as $50 a ticket to help recoup the cost of rising jet fuel prices, the latest in a wave of ticket increases throughout the industry. Heating oil and gasoline prices also surged.
Rising oil prices, in turn, are driving up prices for everything from food to electricity, threatening to end years of modest inflation. Gold prices hit a fresh record yesterday, as investors embrace it as a hedge against inflation and a weakening US dollar, which remained at lows against the euro.
Earlier this month the US Labor Department reported that private employers slashed their payrolls by 101,000 jobs in February, the third straight month of job reductions. Also yesterday a widely followed monthly index of consumer sentiment posted a 16-year low.
Mark Zandi, chief economist for Moodys.com, said current economic and sales data overwhelmingly bolster the argument for recession. He further noted that Feldstein was prescient in predicting last year the US economy was due for a rough patch.'Dr. Feldstein was well ahead of most economists in diagnosing the current problems and suggesting it would result in recession,' Zandi said.
Bank of Canada opts for aggressive interest rate cut
Further rate cuts 'likely'
Tuesday, March 4, 2008
The Bank of Canada on Tuesday chopped its key overnight lending rate by half a percentage point to 3.5 per cent to prevent U.S. economic weakness from spilling over into this country.
It's the first time the Bank of Canada has cut its key rate by more than a quarter of a percentage point in more than six years.
Analysts had been divided over how much the Bank of Canada would trim rates. Many thought the bank would opt for a half-point cut. Others thought a quarter-percentage-point cut would be more likely, given that domestic demand in the Canadian economy is still strong.
But the central bank said the prospects for Canada's economy have obviously weakened in the last two months.
"There are clear signs that the U.S. economy is likely to experience a deeper and more prolonged slowdown than had been projected in January," the bank said in a statement.
"The deterioration in economic and financial conditions in the United States can be expected to have significant spillover effects on the global economy."
The Bank of Canada also signalled that further interest rate cuts are probable.
"Further monetary stimulus is likely to be required in the near term to keep aggregate supply, and demand in balance and to achieve the two per cent inflation target over the medium term."
The bank said the slumping U.S. residential housing market is hurting other parts of the U.S economy and leading to a further tightening in credit conditions. As a result, it said the downside risks to Canada's economy are intensifying.
"The bank now judges that the balance of risks around its January projection for inflation has clearly shifted to the downside," the bank said.
Bank prime rate falls to 5.25%
It took the big banks more than five hours to start matching the Bank of Canada's rate cut with a half-percentage point cut in their prime lending rates. TD Bank was the first to lower its prime rate to 5.25 per cent, from 5.75 per cent, effective Wednesday. Royal Bank, CIBC, Scotiabank, BMO and Laurential Bank followed soon after.
The prime rate is what banks charge their best customers and serves as a benchmark for a whole range of lending rates for variable mortgages and floating interest rate loans.
The Canadian dollar, which had been trading slightly higher just before the rate announcement, quickly fell on news of the half-point cut. The loonie fell more than two-thirds of a cent to close at $1.0049 cents US.
On Monday, Statistics Canada reported that the Canadian economy contracted by a weaker-than-expected 0.7 per cent in December.
Fourth-quarter growth came in at just 0.8 per cent on an annual basis — the weakest since 2003.
Tuesday's aggressive rate cut was the first policy move presided over by the new Bank of Canada governor, Mark Carney. He took over from David Dodge, who retired at the end of January.
