Don't expect quick, deep rate cuts: Bank of Canada

Thu Jan 24, 2008 1:51pm EST
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By Randall Palmer

OTTAWA (Reuters) - Bank of Canada Governor David Dodge steered markets away from the idea of sudden and large interest rate cuts on Thursday, saying the central bank sought to move "in a measured fashion."

He did not rule out cutting rates by more than one-quarter percentage point at a time or reducing them in between the bank's fixed announcement dates -- as the U.S. Federal Reserve did with its unexpected three-quarter-point cut on Tuesday.

But he said the Bank of Canada prefers to move at a steady pace with the medium term in mind, and that in any case the Canadian economy has bigger capacity pressures than the United States does, suggesting less of a need for deep Canadian cuts.

"Our situations really are quite different," he told a regularly scheduled news conference, set two days after the bank cut its key overnight rate by a quarter point to 4 percent.

The bank has eight fixed policy announcement dates per year, the next one not being till March 4. Dodge repeated that further monetary stimulus is likely to be required in the near term.

Asked about the possibility of moving before March 4, he said: "I think moving in a measured fashion is certainly, most normally, the right way to operate and that's how we've tried to operate."

Pressed on whether it was possible to act between fixed dates, he pointed out that the bank had only done that once -- shortly after the September 11, 2001, attacks on the United States -- since introducing is new system of fixed dates in November 2000.

"It's always conceivable but, as you well know, over the last decade we have changed rates outside the fixed dates only once," said Dodge, who is retiring at the end of the month after seven years at the helm of the bank.   Continued...