Bank of Canada lowers overnight rate target by 1/4 percentage point to 1/4 per cent and, conditional on the inflation outlook, commits to hold current policy rate until the end of the second quarter of 2010



    OTTAWA, April 21 /CNW Telbec/ - The Bank of Canada today announced that
it is lowering its target for the overnight rate by one-quarter of a
percentage point to 1/4 per cent, which the Bank judges to be the effective
lower bound for that rate. The Bank Rate is correspondingly lowered to 1/2 per
cent. The deposit rate - the rate paid on deposits held by financial
institutions at the Bank of Canada - is left unchanged at 1/4 per cent and
provides the floor for the overnight rate. Details of the Bank's operating
framework at the effective lower bound can be found here:
http://www.bankofcanada.ca/en/fixed-dates/2009/rate_210409_1.pdf
    In an environment of continued high uncertainty, the global recession has
intensified and become more synchronous since the Bank's January Monetary
Policy Report Update, with weaker-than-expected activity in all major
economies. Deteriorating credit conditions have spread quickly through trade,
financial, and confidence channels. While more aggressive monetary and fiscal
policy actions are underway across the G20, measures to stabilize the global
financial system have taken longer than expected to enact. As a result, the
recession in Canada will be deeper than anticipated, with the economy
projected to contract by 3.0 per cent in 2009. The Bank now expects the
recovery to be delayed until the fourth quarter and to be more gradual. The
economy is projected to grow by 2.5 per cent in 2010 and 4.7 per cent in 2011,
and to reach its production capacity in the third quarter of 2011. Given
significant restructuring in a number of sectors, potential growth has been
revised down. The recovery will be importantly supported by the Bank's
accommodative monetary stance.
    The Bank expects core inflation to diminish through 2009, gradually
returning to the 2 per cent target in the third quarter of 2011 as aggregate
supply and demand return to balance. Total CPI inflation is expected to trough
at -0.8 per cent in the third quarter of 2009 and return to target in the
third quarter of 2011. While the underlying macroeconomic risks to the
projection are roughly balanced, the Bank judges that, as a consequence of
operating at the effective lower bound, the overall risks to its inflation
projection are tilted slightly to the downside.
    With monetary policy now operating at the effective lower bound for the
overnight policy rate, it is appropriate to provide more explicit guidance
than is usual regarding its future path so as to influence rates at longer
maturities. Conditional on the outlook for inflation, the target overnight
rate can be expected to remain at its current level until the end of the
second quarter of 2010 in order to achieve the inflation target. The Bank will
continue to provide such guidance in its scheduled interest rate announcements
as long as the overnight rate is at the effective lower bound.
    To reinforce its conditional commitment to maintain the overnight rate at
1/4 per cent, the Bank will roll over a portion of its existing stock of one-
and three-month term Purchase and Resale Agreements (PRAs) into six- and
twelve-month terms at minimum and maximum bid rates that correspond to the
target rate and the Bank Rate, respectively. These longer-term PRAs will be
issued according to the schedule released today:
http://www.bankofcanada.ca/en/fixed-dates/2009/rate_210409_3.pdf
    Today's decision to lower the policy rate by 25 basis points brings the
cumulative monetary policy easing to 425 basis points since December 2007. It
is the Bank's judgment that this cumulative easing, together with the
conditional commitment, is the appropriate policy stance to move the economy
back to full production capacity and to achieve the 2 per cent inflation
target. The Bank retains considerable flexibility in the conduct of monetary
policy at low interest rates, consistent with the framework to be outlined in
the Bank's Monetary Policy Report on 23 April.

    Information note:
    The next scheduled date for announcing the overnight rate target is
    4 June 2009.




For further information:

For further information: Jeremy Harrison, (613) 782-8782


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890