Bank of Canada releases Monetary Policy Report



    OTTAWA, Oct. 23 /CNW Telbec/ - The Bank of Canada today released its
October Monetary Policy Report, which discusses current economic and financial
trends in the context of Canada's inflation-control strategy.
    In the Report, the Bank noted that three major interrelated global
developments are having a profound impact on the Canadian economy and making
the outlook for growth and inflation more uncertain than it was at the time of
the July Monetary Policy Report Update. First, 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. Second, the global economy appears to be
heading into a mild recession, led by a U.S. economy that is already in
recession. Third, there have been sharp declines in many commodity prices.
    Consistent with the G7 Plan of Action, major economies have announced
extraordinary measures to stabilize their financial systems. These initiatives
will be pivotal to the resumption of the flow of credit to support global
economic growth. Canada's economy and strong financial system will benefit
directly from these actions.
    The weaker outlook for global demand will increase the drag on the
Canadian economy coming from exports. Lower commodity prices will also dampen
the outlook, working through a deterioration in Canada's terms of trade to
moderate domestic demand growth. The marked tightening in Canadian credit
conditions in recent weeks will restrain business and housing investment.
    The Bank expects growth to be sluggish through the first quarter of next
year, then to pick up over the rest of 2009 and to accelerate to
above-potential growth in 2010 supported by improving credit conditions, the
lagged effects of monetary policy actions, and stronger global growth. The
recent sizable depreciation of the Canadian dollar will also provide an
important offset to the effects of weaker global demand and lower commodity
prices. Overall, the Bank projects average annual growth in real GDP of 0.6
per cent in both 2008 and 2009, and 3.4 per cent in 2010.
    With excess supply projected to build throughout 2009, and with lower
assumed energy prices, inflationary pressures will ease significantly relative
to the projection in the July Monetary Policy Report Update. Core inflation is
now projected to remain below 2 per cent until the end of 2010. Total CPI
inflation should peak during the third quarter of 2008, fall below 1 per cent
in mid-2009, and then return to the 2 per cent target by the end of 2010.
    On 21 October, the Bank of Canada lowered its policy interest rate by
25 basis points. That decision followed a 50 basis point cut on 8 October
taken in concert with other major central banks. Together, these moves bring
the cumulative reduction in the Bank's target for the overnight rate to 75
basis points since the Bank's previous fixed announcement date on 3 September.
These actions provide timely and significant support to the Canadian economy.
The cumulative reduction in the Bank's policy rate since the beginning of
December 2007 is now 225 basis points.
    In line with the new outlook, some further monetary stimulus will likely
be required to achieve the 2 per cent inflation target over the medium term.
The evolution of the financial crisis, its impact on the global economy, and
the timing of the effects of the various extraordinary measures being taken to
address it pose significant risks to the inflation projection on both the
upside and the downside.




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


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