Bank of Canada lowers overnight rate target by 1/4 percentage point to 4 per cent

    OTTAWA, Jan. 22 /CNW Telbec/ - The Bank of Canada today announced that it
is lowering its target for the overnight rate by one-quarter of one percentage
point to 4 per cent. The operating band for the overnight rate is
correspondingly lowered, and the Bank Rate is now 4 1/4 per cent.
    In the second half of 2007, the Canadian economy grew broadly in line
with the Bank's expectations in the October Monetary Policy Report (MPR).
Despite some slowing in growth in the fourth quarter, the Canadian economy
continues to operate above its production capacity. Both core and total CPI
inflation have been lower than projected in the MPR, largely reflecting a
price-level adjustment related to increased competitive pressures in the
retail sector stemming from the level of the Canadian dollar.
    Financial market conditions have deteriorated since October, leading to a
tightening of credit conditions in industrial countries. Given this, and a
deeper, more prolonged decline in the U.S. residential housing sector, the
2008 outlook for the U.S. economy is now significantly weaker than at the time
of the October MPR.
    For Canada, the effects of the weaker U.S. economic outlook will lead to
additional downward pressure on export growth. However, despite tighter credit
conditions, domestic demand in Canada is projected to remain strong. This
strength is supported by continued income growth associated with the increase
in commodity prices since October, which has led to further gains in our terms
of trade. Overall, the Bank now projects weaker growth in 2008 than was
expected in October, with the economy moving into modest excess supply in the
second quarter of this year. Somewhat stronger growth in 2009 brings the
Canadian economy back into balance in early 2010. The inflation projection has
also been revised down since October, especially for 2008, primarily
reflecting the price-level adjustment noted above and the recent
one-percentage-point cut in the GST. Both core and total CPI inflation should
fall below 1 1/2 per cent by the middle of this year before returning to the
2 per cent target by the end of 2009. On the whole, the Bank judges that the
risks to this inflation projection are roughly balanced.
    In line with this outlook, the Bank has decided to lower the target for
the overnight rate and further monetary stimulus is likely to be required in
the near term to keep aggregate supply and demand in balance and to return
inflation to target over the medium term.

    The Bank's detailed projection for the economy and inflation, and risks
to the projection, will be published in the Monetary Policy Report Update on
24 January 2008.

    Information note:

    The Bank of Canada's next scheduled date for announcing the overnight
rate target is 4 March 2008.

For further information:

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

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