OTTAWA (Reuters) - The Bank of Canada cut its benchmark interest rate on Tuesday by a half-percentage point to 3 percent, as expected, and signaled that further easing was required but suggested it might pause before cutting again.
In a statement which projected a steeper U.S. economic downturn that would dampen Canadian growth, the bank said “further monetary stimulus will likely be required,” but dropped a previous reference to the need for more cuts in the “near term.”
“Given the cumulative reduction in the target for the overnight rate of 150 basis points since December, the timing of any further monetary stimulus will depend on the evolution of the global economy and domestic demand, and their impact on inflation in Canada,” the central bank said.
The bank pushed back the time frame for inflation to move back up to its 2 percent target to 2010 from end-2009 and for the economy to move back into balance to mid-2010 from early 2010. It said the economy was operating above capacity now but would move into excess supply in the second quarter of 2008.
Tighter credit conditions and weakening confidence will likely weaken business investment and consumer spending, the bank said. However, it sees domestic demand staying strong due to high commodity prices, a vibrant labor market and the effect of cumulative interest rate cuts.
Reporting by Louise Egan; Editing by Randall Palmer