Canada cuts interest rate to lowest in five decadesDecember 10th, 2008 - 11:08 am ICT by IANS
Toronto, Dec 10 (IANS) With the Canadian economy - most robust among all the G7 industrialized nations - officially entering a recession, the country’s national bank has cut its interest rate to the lowest level in half a century to ease borrowing to spur economic activity.Amid recession, the Toronto stock market also slipped by two percent to end the day at 83,97.56.
Reacting to the grim economic outlook, the Bank of Canada Tuesday said its benchmark overnight rate stands reduced by three-quarters of a percentage point to 1.5 percent. This is the lowest level of interest rates since 1958.
The bank warned that the outlook for the world economy has deteriorated significantly and the global recession will be broader and deeper than previously anticipated.
It said Canada’s economy too is now entering a recession as a result of the weakness in global economic activity.
However, the depreciation of the Canadian dollar, which will help offset to the effects of weaker global demand and lower commodity prices, was a positive development, the bank said.
In addition to Tuesday’s reduction in interest rates, the national bank had earlier announced similar cuts in interest rates in October as outlook for growth and inflation started looking grim.
The bank said it will carefully monitor economic and financial developments to decide whether any further monetary stimulus is needed to achieve the two percent inflation target over the medium term.
On the Toronto stock exchange, the financial sector dived more than five percent on the news of interest rate cut and a new equity issue of $2.3 billion by the nation’s top Royal Bank of Canada (RBC).
RBC shares retreated $2.21 to close at $35.29. The second largest bank Toronto Dominion or TD was also down $3.40 to end at $42.10. The shares of telecom giant Bell also slipped lower by $2.15 at end at $22.50.
At 79.08 cents US, the Canadian dollar or loonie was also slightly down against the greenback as crude prices hovered in the region of $40.