Bank of Canada cuts key rate in coordinated move

Wed Oct 8, 2008 8:53am EDT
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By Frank Pingue

TORONTO (Reuters) - The Bank of Canada unexpectedly cut its key interest rate by 50 basis points to 2.50 percent on Wednesday in a coordinated effort with other central banks to help calm ailing financial markets.

In a statement that left the door open to further rate cuts, the bank said the intensification of the global financial crisis was impacting all countries and that conditions in global financial markets have worsened considerably.

"In recent weeks conditions in global financial markets have deteriorated sharply, the U.S. economy has weakened further, and commodity prices have fallen abruptly," the Bank of Canada said in a statement.

"As a result of these developments, credit conditions in Canada have tightened significantly, despite the relative health of our financial institutions."

The decision to lower its key rate ahead of its scheduled interest rate announcement on October 21 came along with rate cuts from central banks across the world, including the U.S. Federal Reserve, European Central Bank and Bank of England. China also lowered benchmark rates.

The Bank of Canada said weaker growth in the United States and other key trading partners will increase the drag on the domestic economy coming from net exports.

It also said the recent easing of the Canadian dollar will help cushion the effects of the weaker global outlook on the domestic economy but will not completely offset them.

The rate cut, which marks the bank's biggest interest rate cut since back-to-back 50-basis-points cuts in March and April, marks the first time since September 2001 that the Bank of Canada has moved on interest rates outside of its fixed announcement dates, which were implemented in 2000.   Continued...

<p>Bank of Canada Governor Mark Carney leaves his office for a news conference upon the release of the Monetary Policy Report in Ottawa July 17, 2008. REUTERS/Chris Wattie</p>