Canada credit conditions worsen in Q4: BoC polls

Mon Jan 12, 2009 12:08pm EST
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By Louise Egan

OTTAWA (Reuters) - Lending conditions in Canada worsened considerably in the fourth quarter and overall business sentiment is at its lowest level in at least a decade, two Bank of Canada surveys showed on Monday.

The central bank surveyed senior loan officers at 11 major banks and senior management at about 100 businesses during the quarter in two separate studies.

"Business sentiment has deteriorated markedly since the autumn survey, as the effects of the international financial crisis and the weak global economy intensified and spread to domestic demand," the bank said.

The pessimism added weight to the view that the Bank of Canada will opt for a half-point cut in its key lending rate on January 20 rather than a less aggressive move.

"Very weak demand conditions, both domestically and globally are impacting every aspect of business activity," said Charmaine Buskas, senior economics strategist at TD Securities.

"This provides further support to our view that the Bank of Canada will continue to ease and is on track for another 50 bps rate cut next week," she said in a written note.

The bank has already lowered its overnight target rate to a 50-year low of 1.5 percent. Markets are pricing in about a 72 percent probability of a 50 basis point cut next week, based on trading of overnight index swaps.

The loan officers reported a widespread tightening of credit conditions, compared with the third quarter, both in terms of price and in terms and standards.   Continued...