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CBC News : "Bank of Canada cuts benchmark interest rate to 0.5%"

Posted by Fed Finance Canada in Fed Finance news
Posted at 15/07/2015
CBC News : "Bank of Canada cuts benchmark interest rate to 0.5%"

2nd time since January that central bank has cut lending rate

Canada's central bank today lowered its benchmark interest rate to 0.5 per cent, the second time this year it has dropped the rate to stimulate the economy, after holding it steady for about four years.

"The bank's estimate of growth in Canada in 2015 has been marked down considerably from its April projection," the bank said in a statement announcing the news Wednesday.

"Real GDP is now projected to have contracted modestly in the first half of the year," which is the bank's way of saying it expects the Canadian economy entered into a technical recession in the first half of 2015 — defined as two consecutive quarters of shrinking gross domestic product.

"Optimists have been quite simply wrong this year"- BMO economist Doug Porter

BMO economist Doug Porter said the central bank's policy statement Wednesday is a much bleaker view on the economy than other recent ones.

"We believe they are too downbeat on second-half prospects, but admittedly optimists have been quite simply wrong this year," Porter said.

Bank of Canada governor Stephen Poloz will hold a news conference at 11:15 a.m. ET Wednesday to discuss the rate-cut decision. CBC will livestream his remarks.

The bank's new rate — also known as the "target for the overnight rate" — is a 25 basis-point reduction from its previous 0.75 per cent level.

Before the Bank of Canada cut the rate to 0.75 in January, it had been at one per cent since late 2010.

The loonie lost almost a cent to 77.57 cents US on Wednesday's news. Rate cuts drive currencies lower because they make the country's economy less attractive to foreign investors.

TD Bank cuts rate in reaction

At least one of Canada's big banks was quick to pass on at least part of the central bank's rate cut to consumers.

TD Bank announced within minutes of the Bank of Canada's decision that it will also cut its prime lending rate to 2.75 per cent, starting Thursday.

The central bank's rate impacts the rates that commercial banks offer because it affects their cost of borrowing. Although they're not obligated to, banks tend to either pass on the savings, or the added costs.

Stephen Poloz cut the Bank of Canada's benchmark interest rate on Wednesday to 0.5 per cent from 0.75.

But TD's cut is only 10 basis points lower than where it was before, not the total amount of the 25-point cut that the central bank announced. TD pocketed a similar amount when the central bank cut its rate by 25 points in January, passing on only 15 points to its customers.

Added together, that means TD has cut its prime lending rate by 25 basis points during a time when the central bank has cut its benchmark rate by twice that.

Canada's other major lenders are usually quick to respond to any change in the prime rate by any rivals.

CBC News is reaching out to all the big banks to see if they are changing their own interest rates.

Image : Bank of Canada

Source : CBC News

To read the full article, please click here : http://www.cbc.ca/news/business/bank-of-canada-cuts-benchmark-interest-rate-to-0-5-1.3152673


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