By Jason Simpkins
Managing Editor
Money Morning
The Bank of Canada (BOC) today (Tuesday) cut its benchmark-lending rate in half to a record low 0.5%. Governor Mark Carney said the central bank could cut rates further and perhaps take actions beyond rate adjustments if conditions continue to deteriorate.
"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," the BOC said in a statement. "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% inflation target over the medium term."
However, the details for any further action won't be made available until after the bank's April 23 monetary policy report.
Governor Carney, who in January called quantitative easing a "highly unlikely, remote situation," has now lowered rates by 350 basis points since February 2008. The BOC has injected as much as $32 billion (C$41 billion) into financial markets to spur lending.
The bank said its target 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."
"Quantitative easing is basically when they start printing money...and you basically are printing money and using that money perhaps to buy products in the bond market to pull down their spreads. So, it's sort of the nuclear option," Eric Lascelles from TD Securities told Reuters. "It (the statement) suggests the Bank of Canada is very serious about this situation and it recognizes it's probably been a little too optimistic recently in terms of the outlook."
Canada's gross domestic product (GDP) shrank at a 3.4% annualized pace in the fourth quarter of 2008, the biggest contraction in 17 years. The central bank said in January that the economy would shrink at an annualized rate of 2.3% in the fourth quarter and 4.8% in the first quarter of 2009, before resuming growth in the second half of the year.
Statistics Canada reported a record job loss of 129,000 in January, according to Bloomberg News.
Australia Rate Untouched
The Reserve Bank of Australia left its key interest rate at unchanged at 3.25% today.
"In Australia, demand has not weakened as much as in other countries and, on the basis of currently available information, the Australian economy has not experienced the sort of large contraction seen elsewhere," bank governor Glenn Stevens said in a statement. "The Australian financial system remains strong and the monetary policy transmission process is working to deliver large reductions in interest rates to end borrowers."
However, the bank warned that "economic conditions are clearly weak, and given the speed and scale of the global economic deterioration and its effect on confidence, weak conditions are likely to continue in the near term."
The European Central Bank (ECB) and the Bank of England (BOE) are expected to announce further reductions to their interest rates Thursday, March 5.
"We confirm that 2% is not the lowest level," ECB President Jean Claude Trichet told a news conference after the ECB left rates unchanged at its February policy meeting. "I don't exclude that we could decrease rates at our next meeting."
The ECB is expected to lower the rate to 1.5% and the Bank of England is expected to cut its key rate to 0.5% -- the lowest rate since the bank's founding in 1694.
News and Related Story Links:
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Bank of Canada:
Bank of Canada lowers overnight rate target by 1/2 percentage point to 1/2 per cent
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Reserve Bank of Australia:
Statement by Glenn Stevens, Governor Monetary Ppolicy