Bank of Canada's Carney ponders degree of rate cut

Mon Feb 18, 2008 6:53pm EST
 
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By Allan Dowd

VANCOUVER (Reuters) - The Bank of Canada has to weigh strong domestic demand against the spillover effects of the slowing U.S. economy when deciding how much to cut interest rates next month, Governor Mark Carney said on Monday.

Carney used his first speech since becoming central bank chief on February 1 to convey that he is keeping his options open, suggesting he could potentially reduce the bank's overnight rate by 50 basis points, as most market players expect.

Carney's first rate decision on March 4 comes after back-to-back cuts in December and January of 25 basis points each, leaving the benchmark rate at 4 percent.

In late January, the bank said more monetary stimulus would likely be required in the near term and Carney's predecessor, David Dodge, said the bank preferred "measured" cuts, a term that Carney has stayed away from.

"The timing and degree of that stimulus will be determined at future fixed announcement dates, after we have conducted a thorough analysis of, and applied our judgment to, all information available to us at that time," Carney said in his speech, echoing statements made earlier this month in Tokyo.

The Bank of Canada has not cut rates by as much as a half-percentage point since shortly after the September 11, 2001 attacks in the United States.

Most primary securities dealers surveyed by Reuters expect the bank to cut rates to 3.50 percent in March.

Carney kept his cards close to his chest, declining to comment on data released in the past two weeks that have highlighted the contrast between sagging exports on the one hand, and a vibrant job market and housing sector on the other.   Continued...

 
<p>Bank of Canada governor Mark Carney is shown in this file photo taken on Parliament Hill in Ottawa January 31, 2008. The Bank of Canada has to weigh strong domestic demand against the spillover effects of the slowing U.S. economy when deciding how much to cut interest rates next month, Carney said on Monday. REUTERS/Chris Wattie</p>