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Bank of Canada Cuts Interest Rates

November 27, 2001

OTTAWA (AP) _ The Bank of Canada cut another half a percentage point off its key interest rate Tuesday to kickstart growth in a rapidly slowing economy.

The bank’s key overnight rate, which influences what commercial banks charge for mortgages and other consumer loans, now stands at 2.25 percent.

The Royal Bank immediately cut its prime lending rate a half point to 4 percent. Other lenders were expected to follow.

The latest cut, which follows a three-quarter percentage point cut Oct. 23, was widely expected by analysts and brings rates to a 41-year low.

It is the ninth reduction this year by central bankers who have slashed 3.5 percentage points off interest rates since the beginning of the year.

Rates have not fallen to such low levels since Sept. 22, 1960 when the key rate stood at 1.95 percent.

The central bank said the downturn in the global economy and the fallout from the Sept. 11 terrorist attacks continue to affect the Canadian and American economies with little relief in sight.

That uncertainty is undermining consumer and business confidence, said Rob Palombi, an analyst with Standard & Poors MMS.

American economists said Monday that the United States, Canada’s largest trading partner, entered a recession in March.

The U.S. Federal Reserve has cut rates 10 times since the beginning of the year, decreasing its benchmark federal rates fund to 2 percent from 6.5 percent _ the lowest in 40 years.

Both banks have said it’s too early to tell when the economy will improve.

Earlier this month the Bank of Canada predicted flat growth for the rest of the year and little expansion in 2002.

The weak economy has also kept a lid on inflation, something usually feared by central bankers with such aggressive easing in rates. In October, inflation was 1.9 per cent.

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