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TORONTO (AP) — Canada’s central bank cut its key interest rate by a quarter-point on Tuesday, saying Canada needs the stimulus to ward off the effects of a United States already in recession and a global economy heading there.
The cut to 2.25 percent Tuesday follows an unscheduled half-point reduction Oct. 8 in co-operation with other major central banks in an effort to ease lending and boost the global economy.
The Bank of Canada is the first central bank to make a further cut since that coordinated move.
“The global economy appears to be heading into a mild recession, led by a U.S. economy already in recession,” the Bank of Canada said in a statement.
The bank hinted that it may cut further at the next scheduled announcement in December.
Many economists had recommended a reduction of half a point, but the more moderate cut might make it easier for Canada’s big banks to follow through and pass on the lower rate to customers.
Canada’s private banks initially declined to pass on to consumers the full half percentage-point cut in interest rates announced by central banks around the world on Oct. 8 — a troubling move that affected Canadians’ ability to get or afford loans for mortgages and businesses.
But most of the banks cut the interest rates by a full half point after the Canadian government announced a $25 billion Canadian ($20 billion) bailout that would see the government buy mortgages from the banks. TD Canada Trust and CIBC declined to pass on the full cut to their customers despite the bailout.
“The marked tightening in Canadian credit conditions in recent weeks will restrain business and housing investment,” The Bank of Canada said.
Canada’s central bank now says the country’s economy will advance by only 0.6 percent this year and next year, before recovering to a 3.4 percent growth rate in 2010.
“The weaker outlook for global demand will increase the drag on the Canadian economy coming from exports,” the bank stated.
“Lower commodity prices will also dampen the outlook.”
Bank governor Mark Carney has made two cuts in the last month after leaving Canada’s overnight rate at 3 percent for several months following half-point cuts in March and April.
Carney is a former Goldman Sachs executive who took over the central bank’s top post on Feb. 1 from David Dodge.
