Bank of Canada softens tone on further stimulus

Wed Apr 1, 2009 5:32pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Scott Haggett

YELLOWKNIFE, Northwest Territories (Reuters) - The Bank of Canada signaled on Wednesday there is no guarantee it will cut rates further or use unconventional policies to combat the recession, despite an economy that it said may be shrinking at the fastest pace in at least half a century.

Governor Mark Carney said in a speech that Canada's recession could extend through the second half of this year, backing away from an earlier forecast that growth would return in the third quarter.

The economy likely contracted in the first quarter at its sharpest rate since record-keeping began in 1961, Carney said.

Even so, he signaled that investors should not assume the bank will use additional tools at its disposal -- including an interest rate cut or unorthodox measures -- to stimulate growth with the central bank's benchmark rate already near zero.

It all depends what works best to achieve the bank's 2 percent inflation target, he said.

"Whatever type of stimulus, whether an additional reduction of interest rates or use of credit or quantitative easing, will solely be determined by achieving that target," Carney told reporters in a news conference after his speech to a business audience in Yellowknife, Northwest Territories.

He hinted that the bank could provide the stimulus the economy needs simply by holding down rates -- now at a historic low of 0.5 percent -- for an extended period of time, without cutting further.

"Duration matters. By keeping rates low for longer, additional stimulus can be provided," he said.   Continued...

<p>Mark Carney, Governor of the Bank of Canada, speaks during a luncheon for the New York Association for Business Economics at the Harvard Club in New York May 22, 2008. REUTERS/Shannon Stapleton</p>