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1/4% Rate Cut

Interest-Rates The Bank of Canada has cut its key interest rate 1/4%.

The overnight target rate is now a record-low 0.25%.

More importantly, the BoC stated today that it “commits to hold (the) current policy rate until the end of the second quarter of 2010.”  It is making this uncharacteristic pledge in order to “influence rates at longer maturities.”  (Which impacts things like 5-year mortgages.)  The Bank did include the necessary caveat that this is “conditional on the outlook for inflation.”

The Bank also made several other points of note in its prepared statement:

  • It said “the recession in Canada will be deeper than anticipated.”
  • It predicts the economy will “contract by 3% in 2009” and Canada’s recovery will be “delayed until the fourth quarter.”
  • Inflation is nowhere on the horizon, it says. The BoC now sees inflation returning in the “third quarter of 2011.”

The Bank of Canada has cut rates 4.25% since it started this cycle in December 2007.  Its next interest rate announcement is June 4.