The Bank of Canada lowered its target for the overnight rate by 1/4% to 2.25% and announced that 3 major interrelated developments are impacting the Canadian economy:
1. The global financial crisis is having a severe strain on the financial markets – the global banking sector’s needed to de-leverage will hold back economic growth for some time
2. The global economy seems to be heading into a mild recession led by the US
3. There have been sharp declines in many commodity prices, making the inflation outlook more uncertain than usual
They expect slow growth through Q1 2009 and then it to pick up during the rest of 2009 and accelerating through to above-potential growth in 2010 supported by improving credit conditions, the lagged effects of monetary policy actions and stronger global growth.
Overall, the Bank projects average annual growth in real GDP of 0.6 per cent in both 2008 and 2009, and 3.4 per cent in 2010.