Bank of Canada slashes key rate

Tue Apr 22, 2008 11:11am EDT
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By Louise Egan

OTTAWA (Reuters) - The Bank of Canada slashed its benchmark interest rate by another half-percentage point on Tuesday to 3 percent as insurance against a steep U.S. economic downturn that threatens to engulf Canada.

Additional rate cuts are likely to be needed, the bank said, but it left open the possibility of a pause in its easing cycle as it stands back to assess the fallout from global economic woes before its next rate decision on June 10.

It dropped a previous reference that said it would have to lower rates in the "near term."

"Given the cumulative reduction in the target for the overnight rate of 150 basis points since December, the timing of any further monetary stimulus will depend on the evolution of the global economy and domestic demand, and their impact on inflation in Canada," it said in a statement.

Most market players had expected the 50-point cut as evidence mounts that the impact of the weakening U.S. economy is being felt in Canada, dampening exports and jobs growth.

But reaction was mixed to the more dovish tone on the bank's next move.

"It's as if the bank is signaling some sort of pause but then a pause is, in my view, not logical," said Carlos Leitao, chief economist at Laurentian Bank of Canada.

"If the economy needs further rate cuts then you do it."   Continued...

<p>Mark Carney, Governor of the Bank of Canada, speaks before the Toronto Board of Trade March 13, 2008. REUTERS/Mark Blinch</p>