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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Square_Dealings who wrote (5550)	1/20/2004 2:36:42 PM
From: Condor	Read Replies (1) of 110194

Canada cuts interest rates as economy slows Tue January 20, 2004 10:52 AM ET (Page 1 of 2) (Adds currency movement, analyst commentary) By Gilbert Le Gras OTTAWA, Jan 20 (Reuters) - The Bank of Canada cut its key overnight interest rate to 2.50 percent on Tuesday as it tried to revive an economy at risk of being derailed by the soaring Canadian dollar. "Despite stronger global economic growth, the rapid appreciation of the Canadian dollar against the U.S. currency has cut into the overall growth of aggregate demand for Canadian goods and services through weaker exports and increased imports," the bank said in a statement. The bank said inflation would likely stay below the center of its 1-3 percent target late into 2005, and analysts said that could give it room to lower rates again if it wants. Through 2003 the bank had forecast that inflation would return to target by the middle of 2005. Tuesday's 25 basis point cut was Canada's first interest rate reduction since September 2003, and it matched expections of primary bond dealers polled by Reuters last week. The overnight rate, used as a benchmark for other interest rates throughout the economy, remains half a percentage point above its multiyear low of 2 percent, in force in early 2002. The Canadian dollar eased on the rate cut because the cut narrows the gap between Canadian and U.S. interest rates. But it then recovered to its pre-cut level. Canada's overnight rate is now 150 basis points above comparable U.S. Fed funds rate. The rate cut followed an unprecedented rise in the Canadian dollar over the last 12 months. A year ago the Canadian dollar was worth 64 U.S. cents, and now it is worth 77 U.S. cents. Almost 40 percent of everything Canada produces is exported, so a higher dollar makes Canadian goods more expensive abroad. Commercial banks responded by shaving 25 basis points off their prime rates, which are used to set lending rates to their customers. Continued ... 1\| 2 Next reuters.com

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