Canada cuts rates to 50-year low as recession hits

Tue Dec 9, 2008 12:50pm EST
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By Louise Egan

OTTAWA (Reuters) - Canada's central bank cut its benchmark interest rate on Tuesday more aggressively than most economists had expected, bringing it to its lowest level in 50 years and declaring for the first time that the Canadian economy is in recession.

The Bank of Canada, in a statement released before the stock market opened, said it was lowering its overnight target rate by three-quarters of a percentage point to 1.5 percent, the lowest it has been since 1958.

In explaining its decision, the central bank said the world economic outlook had worsened in recent months. It now expects a "broader and deeper" global downturn than previously anticipated and sees the weakness taking its toll on Canada.

"While Canada's economy evolved largely as expected during the summer and early autumn, it is now entering a recession as a result of the weakness in global economic activity," the bank said in a statement.

It was the first clear admission by the bank that Canada is joining most major economies in sliding into recession, typically defined as two consecutive quarters of contraction, although Governor Mark Carney had hinted at it last month.

After the announcement, the Canadian dollar extended its decline against the U.S. dollar, while Toronto's S&P/TSX composite stock index was up slightly by midmorning.


Despite its stark message on recession, the bank's statement was less explicit than before on the need for more reductions in its overnight rate in January or beyond.   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>