Bank of Canada Governor Mark Carney will probably cut the target rate on overnight loans between commercial banks to 0.5 percent from 1 percent today at 9 a.m. New York time in Ottawa, according to 15 of 23 economists surveyed by Bloomberg News.
Canada is being pulled into a recession as global demand for its automobiles and lumber plunges along with the prices for the commodities it produces. The world’s eighth-largest economy shrank at a 3.4 percent annualized pace in the fourth quarter, Statistics Canada reported yesterday, the most since 1991.
“Weakness in global markets and a deep downturn in the global and Canadian economies tips the balance toward further rate cuts,” said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto. “Events will force their hand again.”
Canada’s decision comes two days before the European Central Bank and the Bank of England are also expected to cut their key interest rates to new lows. ECB President Jean-Claude Trichet signaled policy makers may pare their benchmark rate to a record low of 1.5 percent March 5 as a recession in the euro area deepens. The Bank of England cut to 1 percent last month, the lowest since it was founded in 1694, and economists expect the rate to fall to 0.5 percent this week.
The U.S. Federal Reserve reduced its benchmark to a range of between zero and 0.25 percent on Dec. 16.
‘Further Stimulus’
Carney has cut the central bank’s policy rate from 4 percent since taking over in February 2008, and on Jan. 20 reduced it below the old record of 1.12 percent set in 1958.
“We will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required,” Carney told a parliamentary committee Feb. 10. The phrase echoes what the central bank said on Jan. 20 when the main rate was cut half a point to 1 percent.
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