Bank of Canada Lowers Rates to 0.25%, Commits to Hold Until Q2 2010

The Bank of Canada surprisingly cut its target rate by 25 basis points to 0.25% on Tuesday, and committed to holding the rate at that level until the end of the second quarter of 2010. The deposit rate was left unchanged at 0.25%. Since December 2007, the bank has lowered interest rates a cumulative 425 basis points.

"With monetary policy now operating at the effective lower bound for the overnight policy rate, it is appropriate to provide more explicit guidance than is usual regarding its future path so as to influence rates at longer maturities," the bank said in its statement.

The BOC revised its GDP forecast and now expects a 3% contraction in 2009. Its previous expectation was for a 1.2% decline. Inflation is expected to undershoot the 2.0% target until the third quarter of 2011, and a gradual recovery is now forecast to be delayed until the fourth quarter of 2009.

"By removing some of the uncertainty about the direction of interest rates over the next year, the Bank is working hard to boost the confidence of Canadian households and businesses with the goal of putting the economy on a firmer growth path," said Dawn Desjardins, assistant chief economist at RBC.

IMF Expects $4.1 Trillion in Credit Losses Worldwide

Global losses from the credit crisis could exceed $4.1 trillion by the end of 2010, according to a report from the International Monetary Fund. The IMF raised its projection for $1.4 trillion in credit losses from U.S. financial institutions to a $2.7 trillion loss, while euro zone bank losses will increase by $750 billion through next year.

Consequently, the IMF is calling on countries to take stimulative actions to stabilize their financial systems. The report says that "...although progress is being made, further policy efforts will be required."

G7 Source Says Euro Zone Likely to Say Economy Bottoming

Euro zone finance ministers are likely to tell the G7 that the global economic deterioration is bottoming out, according to a G7 source cited by Reuters on Tuesday.

"Unless something very bad happens we may have reached a bottom now," the source told Reuters ahead of the G7 meeting on Friday.

Nevertheless, the general consensus among finance ministers is that any further stimulus actions should be reexamined sometime during the summer, by which time current initiatives will have had time to take effect, the source said.

U.S. Treasury Secretary Says Most Banks Have Sufficient Capital

The majority of U.S. banks have more capital than they need, Treasury Secretary Timothy Geithner said before the TARP's Congressional Oversight Panel. Uncertainties surrounding the banking system have caused banks to withhold loans, the lawmaker said.

He also said the increased liquidity pumped into the toxic debt market is helping to determine values for illiquid securities. Uncertainty surrounding the true value of toxic assets is making it difficult for financial institutions to raise further capital, he said.

Fed's Hoenig Says Government Aid is Prolonging Cost and Length of Crisis

Government aid to financial institutions may raise the total cost of the crisis by not allowing insolvent firms to fail, according to Kansas City Fed President Thomas Hoenig. Testifying before the Joint Economic Committee, Hoenig urged lawmakers to hold back from pouring additional cash into large firms, as it could add to the "risks of prolonging the crisis and increasing its cost."

Despite record spending, confidence has not been restored to the U.S. financial system, he said. He also criticized the U.S. Treasury's doling out of TARP capital, which failed to adequately identify systemically important firms.

U.S. Weekly Retail Sales Move Lower, According to ICSC

U.S. retailers saw a decline in weekly chain store sales for the week ending April 18, according to a survey from ICSC. ICSC and Goldman Sachs reported that U.S. chain store sales declined an annual 0.1%, compared to the previous week's 0.4% contraction. On a week-over-week basis, sales decreased 0.4% following a previous 0.8% gain.

Meanwhile, the Johnson Redbook retail survey recorded a 1.5% rise in sales in the first week of April versus March, and a 0.1% year-over-year gain.

Europe to See Negative Inflation, but Not Deflation, Says ECB's Papademos

The euro zone will likely experience negative inflation, but deflation is not likely, according to European Central Bank Vice-President Lucas Papademos.

While presenting the ECB's annual report to European parliamentarians in Strasbourg, France, on Tuesday, he said inflation will likely remain around 2%, falling into negative territory by mid-year.

Papademos said inflation is likely to increase again in 2010, though should stay below 2%. He added that inflation levels in 2010 will be indicative of sluggish growth in the euro zone.

He also said financial markets continue to be vulnerable and that "a number of risks lie ahead," adding that it is "too early to assess government measures on funding."

Canadian Wholesale Sales Drop Further in February

Canadian wholesale sales fell in February despite expectations for a rise, Statistics Canada reported. The 0.6% decrease to $41.0 billion was worse than the 1.0% rise expected by analysts and follows a 3.9% decline in January, which was initially reported as a 4.2% fall.

Statistics Canada said falling sales in the machinery and equipment trade group and the "other products" sector were major factors contributing to the decrease.

By Ernest Hoffman, This email address is being protected from spam bots, you need Javascript enabled to view it and Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it , Ernest Hoffman, This email address is being protected from spam bots, you need Javascript enabled to view it and Todd Wailoo, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

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