Monday, January 05, 2009

RBC reports lower inflation equals lower interest rates

RBC is reporting that since the inflation figures are lower than expected, this gives the bank of Canada more room to lower interest rates to help the economy.

Should be interesting to see what the next rate announcement holds!

Lower inflation gives central banks room to manoeuvre

The slowing pace of growth in the world economy and falling commodity prices have led to a sharp reduction in inflation forecasts. Inflation rates in Canada, the United States, the United Kingdom and Eurozone countries are forecast to fall to 0.5% to 2% range after hovering between 3.5% to 5.5% this summer.

The prospect that inflation pressures will continue to abate has opened the door for central banks to skew policy to tackling the problem of a sustained slowing in economic growth by cutting interest rates.

After a co-ordinated 50 basis-point rate cut on October 8, central banks of all four countries continued to ease independently. While some central banks are near the end of the rate-cutting cycle, there is more scope for the ECB and the Bank of England to ease monetary policy further in an attempt to limit the downward pressure on their economies and temper the effect of tight credit conditions. Central banks have also continued

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