The Bank of Canada lowered its interest rate today by 50 basis points to bring the rate to an all-time low of 0.50 percent. Today’s rate cut was widely expected by economic forecasts and comes after the Bank lowered their rate 
by 50 basis points in January and by 75 basis points in December. The BOC has now slashed 400 basis points off the interest rate since December of 2007.
The Bank of Canada cited a weaker global economy and slowing domestic economic activity as spurring the latest rate cut. The rate reduction comes one day after news out of Canada showed that the Gross Domestic Product declined by an annualized 3.4 percent in the fourth quarter of 2008 and marked the sharpest quarterly decline since 1991.
Today’s BOC rate decision statement commented on the Canadian economy stating, “National accounts data for the fourth quarter of 2008 and other indicators of aggregate demand point to a sharper decline in Canadian economic activity and a larger output gap through the first half of 2009 than projected in January. Potential delays in stabilizing the global financial system, along with larger-than-anticipated confidence and wealth effects on domestic demand, could mean that the output gap will not begin to close until early 2010.”
The next BOC rate announcement is scheduled for April 21st.
Australia holds interest rate steady after two large cuts.
The Reserve Bank of Australia decided to hold its official cash lending rate unchanged today at 3.25 percent today according to a government release. Australia had last lowered its interest rate by 100 basis points in each of February and December before today’s rate decision. Overall, the RBA has decreased its interest rate by a total of 375 basis points since October 2008. Today’s decision surprised market forecasts that were expecting the rate to be decreased by 25 basis points to 3.00 percent.
The RBA statement said the bank felt it was appropriate to hold the rate steady as, “there has already been a major change in both monetary and fiscal policy” and that the Australian economy is weathering the global downturn better than most.
Australia’s Glenn Stevens, Governor of Monetary Policy, commented on the Australian economy in the report stating, “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. The Australian financial system remains strong and the monetary policy transmission process is working to deliver large reductions in interest rates to end borrowers. Nonetheless, 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.”
Stayed tuned tomorrow as Australia’s fourth quarter GDP is scheduled to be released at 00:30 GMT. The GDP data is expected to show no growth or 0.0 percent change and could have effects on whether the RBA will be more likely to reduce the interest rate next time around.
