Tuesday, January 22, 2008

Bank of Canada Announces .25% rate cut, US Feds slash rates by 3/4%

The Bank of Canada Cuts the Federal
Prime Lending Interest Rates by 1/4 %

The Bank of Canada could have cut more, but decided to go with a quarter-point off its own key rate, but it signalled more cuts to come as U.S. recession worries spiral.

In it's regularly scheduled announcement, the central bank of Canada lowered its overnight lending rate to 4 percent from 4.25 percent.

This was the Bank of Canada's second straight quarter-point cut as it seeks to protect the Canadian economy and infrastructure from the very severe slowdown or even a possible recession that faces the United States.

The move came shortly after the US Federal Reserve slashed its federal funds interest rate by 75 basis points to low 3.5 percent.

This cut by the US disappointed a number of market players who are calling for a bolder rate cut by Canada to match the Fed.

"The Bank of Canada is clearly stubborn, not wanting to cut by more than 25 basis points and I think the market is quite disappointed," said Eric Lascelles, chief economics and rates strategist at TD Securities.

Ted Carmichael, chief economist at JP Morgan Canada, said the bank "did what was expected a week ago and hasn't reacted whatsoever to developments in financial markets in the past week."

The Bank of Canada, which prepared its rate announcement on Monday, opted not to alter its decision at the last minute in reaction to the Fed move.

While warning that Canada's exports will be hit by the U.S. slowdown, the bank emphasized that high commodity prices will continue to help keep Canada's economy buoyant.

"Despite tighter credit conditions, domestic demand is projected to remain strong," the bank said in its statement.

We should see reductions in mortgage interest rates in the next few days!


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