Bank of Canada Slashes Overnight Rates by 25%

The Bank of Canada today announced its rate decision in which they decided to reduce them by 25 basis points to 0.25 percent which is a new record low since 1934 while growth projections were revised downwards as economic conditions are worsening.

Officials are still using all measures to stimulate economic conditions, which is why the central bank may begin applying quantitative easing following their neighbor the Federal Reserve Bank and the Bank of England to fight off their first recession since 1992.

The rate cut beat market expectations as there were fears that more rate cuts would negatively affect money markets and might cause more turbulence in banking system as already they are trying to battle the worst financial crisis since the Great Depression.

The central bank is projecting a contraction of 3.0% during this year which is worse than prior projections and a recovery will happen later than forecasted while an expansion of 2.5% in 2010 and 4.7% in 2011.

The bank is doing its best to avoid deflation risks in the nation as falling commodity prices is pressuring consumer prices to plummet faster. The softening job market is pressuring prices faster in Canada since demand is weak therefore stores are forced to lower prices.

From the fastest pace of job losses in the economy since 1982, tears consumer confidence apart therefore further holds back spending in the nation. Canada gross domestic product (GDP) annualized showed that the economy shrank by 3.4 percent marking that worst annual contraction since 1991. Economic activities are deteriorating rapidly in the economy after the 4.7% fall in exports in the fourth quarter 2008.

The Canadian economy exports almost 75 percent to the U.S. economy which is facing a prolonged recession then obviously means economic growth in Canada will slump as a result of crippled overseas demand especially from their major trading partner. Canada continues to face risks from the global slowdown that continues to stagger different economies around the world.

In other news today was the International Monetary Fund (IMF) projecting that worldwide losses that were led from bad debts and toxic assets might climb to $4.1 trillion by the end of next year as the recession continues to ravage banks profits. The IMF also said that without more support from governments around the world, the lending system will remain frozen.

With the banking system stabilizing, a recovery to take place anywhere around the world will be impossible, because without loans being provided, overall spending and investment in the nation will continue to tumble downwards. That is why the IMB believes that more banks might have to be nationalized so that lending is made easier for consumers and businesses.

Ecpulse

disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk