Canada cuts interest rate to historic low, but markets slip

March 4th, 2009 - 12:48 pm ICT by IANS  

Toronto, March 4 (IANS) Canada markets, which hit the lowest levels since 2003 Monday, suffered more losses Tuesday as the nation’s central bank cut down interest rates to a historic low of 0.5 percent.
On the news of lower-than-expected profits from the country’s top banks, the Toronto Stock Exchange (TSX) slipped further by 55.89 points Tuesday to close at 7,631.62.

The TSX composite index had fallen more than five percent Monday to reach low levels not seen since the autumn of 2003.

The market’s further slide was caused by financial shares which fell a further three percent Tuesday after slipping 4.5 percent Monday.

Scotiabank shares fell marginally as the nation’s second largest bank posted a less-than-expected net quarterly profit of $842 million till Jan 31, up 1 percent from $835 million during the same period a year before.

Shares of the leader Royal Bank of Canada also slipped 31 cents to $29.66.

With the US economic crisis taking an unprecedented toll on its auto and housing sectors, the Canadian economy is in its worst downturn since 1991.

As Statistics Canada reported Monday, the economy shrank 3.4 percent in the last quarter of 2008 - the biggest drop since the last recession of 1991.

But with its economy still faring better than the US economy which shrank 6.2 percent and the EU economy which shrank 5.9 percent in the third quarter of 2008, the Bank of Canada Tuesday cut interest rates to the historic low of 0.5 percent to ease credit squeeze.

Announcing the cut, the central bank said: “The nature of the US recession, with very weak auto and housing sectors, is particularly challenging for Canada.

“Stabilisation of the global financial system remains a precondition for the global and Canadian economic recoveries. The timely implementation of ambitious plans in some major countries to address toxic assets and recapitalize financial institutions will be critical in this regard.”

The bank said it will continue to “monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve its 2 percent inflation target over the medium term”.

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