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Canada’s Key Interest Rate Drops 1/2% and Banks Follow

Falling-Interest-Rate The Bank of Canada has matched economists’ forecasts and dropped rates again, this time by 1/2%. 

Even better, Canada’s big banks have acted quickly to match the cut.  BMO chopped it’s prime rate to 2.50% just one minute after the BoC’s announcement. RBC matched the cut 3 minutes later.

In its prepared statement today, the Bank of Canada said this:

  • It has seen “weaker-than-expected activity in major economies” since January.
  • There’s been “a sharper decline in Canadian economic activity” than the BoC “projected.”
  • Canadian economic output might not start improving until “early 2010.”
  • The effects of prior rate cuts will likely kick in during the 2nd half of this year.

The BoC left the door open for another rate cut, saying: 

“The target for the overnight rate can be expected to remain at this level or lower at least until there are clear signs that excess supply in the economy is being taken up.”

Like in its previous statement, the Bank said it will carefully judge “to what extent further monetary stimulus will be
required to achieve its 2 per cent inflation target in the medium term.”

The Bank also suggested it has other tools besides rate cuts to jumpstart Canada’s economy.  “In its April Monetary Policy Report, the Bank will outline a framework for the possible use of such measures.”

Here is the complete text of today’s announcement.

Canada’s key lending rate has now fallen 4% in the last 15 months.  It now sits at an all-time low of 0.5%.

The Bank of Canada’s next interest rate meeting is April 21, 2009.