Bank of Canada avoids immediate money expansion

Thu Apr 23, 2009 2:36pm EDT
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By Louise Egan

OTTAWA (Reuters) - The Bank of Canada stunned markets on Thursday with a go-slow approach to injecting additional stimulus into the slumping economy after cutting its benchmark interest to almost zero and predicting the biggest first-quarter contraction on record.

While encouraged by central banks' successful efforts in the United States, Britain and elsewhere to buy securities and thus expand the money supply, Canada signaled it would not follow suit before June -- and maybe not even then.

The Canadian central bank unveiled a framework for quantitative easing, or creating money through purchasing financial assets, and credit easing, which involves help for targeted private-sector credit markets.

But Governor Mark Carney said this was mainly an exercise in transparency to assure Canadians that the bank could do more to boost lending, if needed, chilling market expectations that more easing was imminent.

The bank won't take extra steps unless there are new external shocks to the financial system in coming months, he said.


The bank cut its overnight rate to 0.25 percent on Tuesday for a cumulative reduction of 4.25 percentage points since late 2007, and it promised to keep the rate at 0.25 percent until mid-2010.

"If there were need to do something else, which is a big if, but if there were a need to do something else, we would look to communicate that at our regularly fixed announcement date," Carney told reporters after the bank released its quarterly outlook.   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 in this October 23, 2008 file photo. REUTERS/Chris Wattie</p>