For the second time in a row, the Bank of Canada has cut the overnight rate by 50bps, bringing the target rate to 3.00%. This is now the first time since 2001 - when Canada was last concerned about the fallout from a U. S. recession - that the Bank has seen fit to cut rates by a full percentage point in just six weeks time.
While the latest statistics have underscored a resurgent strength in Canadian home construction, manufacturing and international trade, the Bank is looking past these red herrings and has their sights set squarely on the formidable risks looming over the horizon.
The Bank noted that buoyant growth in domestic demand has been substantially offset by the fall in net exports. Due to a 'deeper and more protracted slowdown in the U.S. economy', this drag from trade is expected to remain. Low levels of unemployment and aggressive easing from the Bank to date highlights why many Canadians have remained fairly sheltered from the U. S. and financial centered woes.
When the updated Monetary Policy Report is reported, it is expected to report dramatically lower expectations for the U.S. and global growth compared with January forecasts. The Bank hopes to ease these pressures. Lower rates will help shield the economy from externally-driven weaknesses, but the imbalances in the financial sector continue to impair short term borrowing.
The Banks forecast for Canadian economic growth in 2008 and 2009 still seems optimistic which is a good sign overall.
Warmly,
Mary Wozny
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