Bank of Canada cuts rates a quarter point, cites U.S. housing
The Bank of Canada on Tuesday said it was cutting its target interest rate by a quarter point, citing worsening problems in the U.S. housing market, in a move that likely predicts the rate direction to be made by its southern neighbor next week.
The Canadian central bank cut its targeted rate by a quarter point to 4.25%, citing inflation figures that were below expectations and downside risks to the bank's inflation projection.
"Global financial market difficulties related to the valuation of structured products and anticipated losses on U.S. subprime mortgages have worsened since mid-October, and are expected to persist for a longer period of time," said the Ottawa-based central bank.
"In these circumstances, bank funding costs have increased globally and in Canada, and credit conditions have tightened further. There is an increased risk to the prospects for demand for Canadian exports as the outlook for the U.S. economy, and in particular the U.S. housing sector, has weakened." See more global coverage.
The decision caught markets by surprise, though economists had said heading into the meeting that the bank was facing a difficult decision.
The U.S. dollar rocketed, rising 1.4% to C$1.0143, a nearly three-month high that put the greenback comfortably above parity.
The move by Canada's central bank comes ahead of several rate decisions globally.
The Reserve Bank of Australia, the Bank of England and the European Central Bank all are due to meet in the next few days, with the U.S. Federal Reserve making its rate decision next week. |
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