Bank of Canada Cuts Key Rate by 1/4-Percentage Point

Canada's central bank cut its key interest rate by a 1/4-point recently, saying Canada needs the stimulus to ward off the effects of a U.S. already in recession and a global economy heading there. The cut to 2.25% recently follows an unscheduled 1/2-point reduction in co-operation with other major central banks in efforts to ease lending and boost the global economy. The Bank of Canada's the 1st central bank to make another cut since that coordinated move. "The global economy appears to be heading into a mild recession, led by a U.S. economy already in recession," the Bank of Canada said in a statement. The bank hinted that it may cut further at the next scheduled announcement in Dec. Many economists had recommended a reduction of half a point, but the more moderate cut might make it easier for Canada's big banks to follow through and pass on the lower rate to customers. Canada's private banks initially declined to pass on to consumers the full half percentage-point cut in interest rates announced by central banks around the world recently, a troubling move that affected Canadians' ability to get or afford loans for mortgages and businesses. But most of the banks cut the interest rates by a full half point after the Canadian government announced a $25 billion Canadian ($20 B) bailout that would see the government buy mortgages from the banks. TD Canada Trust and CIBC declined to pass on the full cut to their customers despite the bailout. "The marked tightening in Canadian credit conditions in recent weeks will restrain business and housing investment," The Bank of Canada said. Canada's central bank now says the country's economy will advance by only 0.6% this year and '09, before recovering to a 3.4% growth rate in '10. "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," it stated. Bank governor Mark Carney's made 2 cuts in the last month after leaving Canada's overnight rate at 3% for several months following half-point cuts in March and April.