Bank of Canada Rates Slashed in Half to 0.25%
The Bank of Canada has taken its influential target interest rate to the lowest practical level in an effort to combat what it says is deeper and more widespread global recession.
The central bank sliced the overnight rate in half to 0.25% yesterday and signalled strongly it will have to keep it there until at least mid-2010.
Bank of Montreal was the first of Canada's big banks to announce that it would lower its own prime rate in step with the central bank, dropping it to 2.25%, and the other chartered banks followed suit.
In addition, the BoC has extended the term of the purchase and resale agreements it uses to inject liquidity into money markets from one-and-three months to six-and-12 months, while setting minimum and maximum bids that correspond to the historically low target rate.
The central bank said it will target a daily level of settlement balance in the financial system at $3 billion - a move it says will help drive the overnight rate to the bottom of the trading band. - The Canadian Press
In the global context, Canadian consumers are doing quite well, at least psychologically, says a report to be released later this month on the state of the global consumer - and in a Canada-specific analysis that was released Monday.
The Boston Consulting Group probed the psyche of more than 13,000 consumers across 13 countries, gauging consumer sentiment and buying intentions. As you would expect, much of it isn't pretty. That goes for Italy. And France. The US, of course. And Spain - especially Spain.
"Canadians are actually doing very well," says Cliff Grevler, partner and managing director of Boston Consulting in Toronto. "When I say they're doing very well, they're doing very well compared to two things. One, the trend line we established in the fourth quarter. And two, compared to all Western counterparts."
That trend line compares Canadian attitudes in the first quarter of this year against the state of the consumer in the fourth quarter of 2008. In the three months ending December 31st, 62% of Canadian respondents said they intended to cut their discretionary spending in the year ahead. In fact, more Canadian consumers than American consumers said they intended to cut back.
That sentiment has been reversed, however, in the first quarter of this year. Yes, a majority of Canadians still intend to ratchet back their spending levels, but that's a marked improvement from the closing months of '08. - Globe and Mail
The Canadian Real Estate Association said last week that the volume of existing home sales was up 7% in March, on the heels of February's 10.3% gain in activity.
"The story is that price reductions are working as intended. They are stabilizing the market and they are drawing buyers... who are taking advantage of improved affordability," said Gregory Klump, CREA's chief economist. - Globe and Mail
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