Central Bank Cuts Interest Rate

Bank of Canada warns of ‘mild recession’

In a surprise move today, the Bank of Canada sliced interest rates by only one-quarter of a percentage point to 2.25 per cent “” a milder cut than what many investors were expecting. In a statement, the central bank said major interrelated developments are having a “profound impact” on the Canadian economy.

The intensification of the global financial crisis has led to severe strains in financial markets. The associated need for the global banking sector to continue to reduce leverage will restrain growth for some time. “Canada’s economy and strong financial system will benefit directly from these actions,” said the statement.

Still, the weaker outlook for global demand will increase the slowdown on the Canadian economy coming from exports. The tightening in Canadian credit conditions will also restrain business and housing investment, said the Bank of Canada.