Slowdown to force Bank of Canada rate cut: poll

Thu Jan 15, 2009 3:37pm EST
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By Frank Pingue

TORONTO (Reuters) - The Bank of Canada will cut rates by at least 50 basis points next week to combat a global slowdown the central bank said has pushed the country into recession, a Reuters poll released on Thursday showed.

The central bank has already cut its key overnight rate by three full percentage points since December 2007. But with no clear evidence of when the global financial crisis will end, dealers said more cuts are needed to support the domestic economy.

"The speed of deterioration in the U.S. economy is probably faster than the bank judged back in December and so that would suggest that the spillover effects into Canada will be more profound," said Derek Holt, an economist at Scotia Capital.

Eleven of the 12 dealers surveyed by Reuters forecast the central bank will cut the overnight rate by 50 basis points to a fresh 50-year low of 1.00 percent on January 20. One dealer, Desjardins Securities, expects a 75 basis point cut to 0.75 percent.

"With the economic data coming in pretty bad early in the first quarter I think the Bank of Canada will maybe have some justification in lowering rates a lot more than what is expected by the market," said Martin Lefebvre, senior economist at Desjardins Securities in Montreal.

Global central banks have cut rates aggressively over the past year in response to the greatest financial crisis since the Great Depression.

The European Central Bank cut its benchmark interest rate by half a percentage point on Thursday, its fourth cut in as many months. In December the Federal Reserve lowered its benchmark rate to a range of zero to 0.25 percent.

Just last week Bank of Canada Deputy Governor Pierre Duguay hinted that the bank would continue to cut interest rates this year, but shied away from giving any indication of how deep any future cuts would be.   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 October 23, 2008. REUTERS/Chris Wattie</p>