BoC Leaves The Door Open To Further Rate Cuts

Saying that the outlook for the global economy has "deteriorated," the Bank of Canada lowered its overnight rate by 50 basis points to 1.00% today, in line with market expectations. The bank has now lowered its main policy rate by 350 basis points since December 2007. The bank rate was lowered to 1.25%.

In its statement, officials noted the "intensifying financial crisis" has spilled over into the real economy, which has led to a decline in business and household confidence worldwide and a further eroding of domestic demand. Officials expect the economy will contract through mid-2009 and sees real GDP declining by 1.2% for the year on an annual basis. But as global policy actions by governments and central banks take hold, "and with support from the past depreciation of the Canadian dollar," officials believe that real GDP will expand by 3.8% in 2010.

The bank expects core CPI to bottom at 1.1% in the fourth quarter of this year, and projects that total CPI will fall below zero for two quarters as energy prices reflect yearly declines. Core and headline Inflation are expected to return to the 2% target in the first half of 2011.

Policymakers left to door open to a further reduction in interest rates; repeating a phrase used to announce last month's reduction, the bank said it will "continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required."

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