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TORONTO (Reuters) - The Bank of Canada hinted on Thursday that it would continue to lower interest rates this year but gave no indication of how deep the cuts would be as the global recession hits the Canadian economy.
Deputy Governor Pierre Duguay said the bank continued to monitor developments in world markets to decide its next moves, amid market expectations of a rate cut on January 20.
"We will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2 per cent inflation target over the medium term," Duguay said in a speech to the Risk Management Association in Toronto.
He said the Canadian economy is now in a recession, a result of the deeper than expected global downturn and severely strained financial markets.
But the domestic economy's recovery will be helped by the depreciation of the currency and the 1.5 percentage point reduction in the bank's key overnight lending target since last October, he said.
Markets widely expect another rate cut in January but are divided over how big the reduction will be, with some expecting a quarter percentage point cut and others a half point.
Duguay's comments largely repeated those in the bank's December 9 rate announcement. The rest of his speech outlined ways to best manage risk in the financial system.
Reporting by Ka Yan Ng, writing by Louise Egan; editing by Peter Galloway