Invest in Canada

The Bank of Canada’s half point rate cut

by investor on 24/04/08 at 12:11 pm

There were a lot of surprises when the BOC cut the rate by half a percentage point-a cut was anticipated but not as much as the half percentage. This was a particularly bold move given that it is the first rate cut by the incoming Governor Mr. Carney – who has taken over the BOC Governor’s position from David Dodge, who is now officially retired.

This suggests that the economic fall out from the pending Recession in the States could be more harmful than first expected to the Canadian economy. This half point rate cut is a clear indication that the economic slowdown South of the border has spilled over into Canada and the a higher Canadian dollar will only add to the economic woes.

In the Bank’s announcement, they stated that “the US economy is likely to experience a deeper and more prolonged slowdown than had been projected in January.” The language used by the central bank suggested that we will be in for further rate cuts in the upcoming months as well. “Further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and keep the 2% inflation target over the medium term.”