The Bank of Canada dropped their key target for the overnight rate by 0.50% to 2.50% this morning along with other global central banks including the US, England, Japan, European Central Bank, US Federal Reserve System, Swiss National Bank and Sweden’s Riksbank. This was a co-ordinated effort to try and help the current financial meltdown.
This signals a need to make a bold act now as the BoC’s interest rate announcment wasn’t scheduled until October 21st, 2008. They stated in the announcment that inflationary presssures have started to ease in many countries due to a decline in energy prices and other commodites and the recent expansion of the financial crisis has greatly increased the risk to growth over the risk of inflation.
Other key points include:
- Conditions in global financial markets have deteriorated sharply, the U.S. economy has weakened further, and commodity prices have fallen abruptly
- As a result of these developments, credit conditions in Canada have tightened significantly, despite the relative health of our financial institutions
- Weaker growth in the United States and other important trading partners will increase the drag on the Canadian economy coming from net exports. The deterioration of our terms of trade will act to moderate the growth of domestic demand. While the recent depreciation of the Canadian dollar will help cushion the effects of the weaker global outlook on the domestic economy, it will not completely offset them
- Below-potential growth in aggregate demand through 2009, combined with a lower profile for commodity prices, will significantly ease inflation pressures in Canada. Inflation expectations remain well anchored