Bank of Canada
Our trusted mortgage broker Matthew Chan keeps us updated on the latest financial market conditions.
Today, the Bank of Canada dropped its key overnight rate by another half percentage point to ½%. This is the lowest ever overnight lending rate. The Prime for most major banks is now 2.50%.
Policymakers have indicated that rates can be expected to stay low as inflation returns to the 2% mark.
The Bank of Canada also acknowledged that the economy has continued to deteriorate since the last announcement in January and that the fourth quarter contraction in 2008 was faster than initially predicted. The Bank of Canada has signaled that it would attempt to ease credit markets by purchasing bonds and assets.
However, the Bank of Canada is still optimistic that once the global financial system stabilizes, the underlying strength of
I have included the announcement and a link to today’s Globe and Mail article below – please feel free to contact me if you have any questions.
Thanks,
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Globe and Mail article:
http://business.theglobeandmail.com/servlet/story/RTGAM.20090303.wrates0303/BNStory/Business/home
Bank of
The outlook for the global economy has continued to deteriorate since the Bank's January Monetary Policy Report Update, with weaker-than-expected activity in major economies. The nature of the
Stabilization of the global financial system remains a precondition for the global and Canadian economic recoveries. The timely implementation of ambitious plans in some major countries to address toxic assets and recapitalize financial institutions will be critical in this regard.
National accounts data for the fourth quarter of 2008 and other indicators of aggregate demand point to a sharper decline in Canadian economic activity and a larger output gap through the first half of 2009 than projected in January. Potential delays in stabilizing the global financial system, along with larger-than-anticipated confidence and wealth effects on domestic demand, could mean that the output gap will not begin to close until early 2010. These factors imply a slightly lower profile for core inflation than was projected in the January MPRU.
The effects of the recent aggressive monetary and fiscal policy actions in
The Bank's decision to lower its policy rate by 50 basis points today brings the cumulative monetary policy easing to 400 basis points since December 2007. Consistent with returning total CPI inflation to 2 per cent, the target for the overnight rate can be expected to remain at this level or lower at least until there are clear signs that excess supply in the economy is being taken up.
Given the low level of the target for the overnight rate, the Bank is refining the approach it would take to provide additional monetary stimulus, if required, through credit and quantitative easing. In its April Monetary Policy Report, the Bank will outline a framework for the possible use of such measures.
The Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve its 2 per cent inflation target over the medium term.
Information note:
The next scheduled date for announcing the overnight rate target is 21 April 2009. A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 23 April 2009.