Just logged-in - I have a lot of messages to read and very little time to get to them. But I can't pass this piece I read on Yahoo!!
Trouble in North America?
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Friday January 30, 1:46 pm Eastern Time
Bank of Canada raises rates to defend currency
(Combines takes, adds quotes, details)
By Jeffrey Hodgson
TORONTO, Jan 30 (Reuters) - The Bank of Canada sharply hiked the country's interest rates on Friday in a move aimed at
strengthening the beleaguered Canadian dollar.
Canada's central bank raised its key bank rate -- similar to the U.S. Federal funds rate -- by 50 basis points to 5 percent.
The move was matched by three of Canada's big six commercial banks, which raised their prime lending rates by 50 basis
points to 6 percent.
A basis point is one one hundredth of a percentage point.
The rate hike came after the value of the Canadian dollar fell to historic lows on Thursday. The currency slid as low as 68.09
U.S. cents -- its weakest level since its creation in 1858.
''The move was not a total shock because the currency was obviously on a one-way street down and there were certainly a
number of calls for the bank to do something about it,'' said Doug Porter, senior economist at brokerage Nesbitt Burns Inc.
The Canadian dollar immediately strengthened after the hike on Friday, rising to 68.46 cents. But the currency soon slipped
back and the central bank intervened in the currency markets, buying the unit to keep it from sliding further.
The Bank of Canada said in a statement that the the dollar's slide was not consistent with the outlook for the Canadian
economy and that the hike was designed to strengthen the currency.
''Downward pressure on the exchange rate for the Canadian dollar has intensified in recent days, leaving the dollar at levels
inconsistent with the underlying trends of the Canadian economy,'' the central bank said.
''This adjustment in the Bank Rate is designed to rebalance monetary conditions and provide support for the Canadian dollar,''
the bank said.
The Bank of Canada's last previous rate hike was on Dec. 12, when it raised rates by 50 basis points in a bid to shore up the
dollar.
Much of the dollar's recent weakness has been attributed to lowered expectations for Canadian economic growth, caused by
Asia's financial crisis and its effect on commodity prices.
But market disappointment that the central bank had not raised interest rates sooner to halt the dollar's slide has also hurt the
currency. |
