Mortgage News


Bank of Canada lowers overnight rate target by 1/2 percentage point to             
1/2 per cent
- Source: Bank of Canada on March 3, 2009

OTTAWA – The Bank of Canada today announced that it is lowering its target for
the overnight rate by one-half of a percentage point to 1/2 per cent. The
operating band for the overnight rate is correspondingly lowered, and the Bank
Rate is now 3/4 per cent.

The outlook for the global economy has continued to deteriorate since the Bank's
January Monetary Policy Report Update, with weaker-than-expected activity in
major economies. The nature of the U.S. recession, with very weak auto and
housing sectors, is particularly challenging for Canada.

Stabilization of the global financial system remains a precondition for the global
and Canadian economic recoveries. The timely implementation of ambitious
plans in some major countries to address toxic assets and recapitalize financial
institutions will be critical in this regard.

National accounts data for the fourth quarter of 2008 and other indicators of
aggregate demand point to a sharper decline in Canadian economic activity and a
larger output gap through the first half of 2009 than projected in January.
Potential delays in stabilizing the global financial system, along with larger-than-
anticipated confidence and wealth effects on domestic demand, could mean that
the output gap will not begin to close until early 2010. These factors imply a
slightly lower profile for core inflation than was projected in the January MPRU.

The effects of the recent aggressive monetary and fiscal policy actions in Canada
and other major economies will begin to be felt in the second half of this year
and will build through 2010. Once the global financial system stabilizes and
global growth recovers, the underlying strength of the Canadian economy and
financial sector should ensure a more rapid recovery in Canada than in most
other industrialized economies.

The Bank's decision to lower its policy rate by 50 basis points today brings the
cumulative monetary policy easing to 400 basis points since December 2007.
Consistent with returning total CPI inflation to 2 per cent, the target for the
overnight rate can be expected to remain at this level or lower at least until there
are clear signs that excess supply in the economy is being taken up.

Given the low level of the target for the overnight rate, the Bank is refining the
approach it would take to provide additional monetary stimulus, if required,
through credit and quantitative easing. In its April Monetary Policy Report, the
Bank will outline a framework for the possible use of such measures.

The Bank will continue to monitor carefully economic and financial developments
in judging to what extent further monetary stimulus will be required to achieve its
2 per cent inflation target over the medium term.

Information note:

The next scheduled date for announcing the overnight rate target is 21 April
2009. A full update of the Bank's outlook for the economy and inflation, including
risks to the projection, will be published in the Monetary Policy Report on 23 April
2009.


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