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Bank of Canada Cuts Rate 1/4%

Lower-Interest-rates It was less than some expected and more than others expected.  The Bank of Canada lowered its key lending rate 0.25%.

The BoC factored a host of variables into its decision: a contracting economy, a “global financial crisis,” declining commodity prices, and a depreciating Canadian dollar.

In its statement this morning, the BoC expressed concern that Canada’s tight credit markets will “restrain business and housing investment.”  It also expects that “further monetary stimulus will likely be required to achieve the 2 per cent inflation target.”  (i.e.  another rate cut)

Now the ball is in the banks’ court.  Variable-rate borrowers are watching and waiting to see if Canadian banks follow the BoC’s lead and lower their prime rate 1/4%.  As you may recall, when the BoC cut rates Oct. 8 the Banks didn’t initially match the cut.

On a positive note, the Bank of Canada suggests we might avoid a recession this year and next.  By 2010 it’s even forecasting a solid economic recovery with 3.4% GDP growth.

The BoC has now cut rates 2.25% since last December.  Its next rate meeting is December 9.

Canada’s 5-year bond yield is down to 2.83%.