Bank of Canada Cuts Rate To Spur Sluggish Economy
April 03, 2011
OTTAWA -- The Bank of Canada cut its bank rate by one-quarter percentage point in an effort to spur a sluggish Canadian market. The central bank's action followed a government report Friday that Canadian retail sales in May showed little change for the fourth consecutive month. The rate reduction brought the bank rate, the fee the Bank of Canada levies on loans to commercial banks, to 4 3/4 %, its lowest level in almost 2 1/2 years. The easing of credit conditions has boosted housing demand, but the job market has remained shaky. The unemployment rate is 10%. Petrina Jefferson, senior economist at Toronto Dominion Bank, said a 2.1% drop in imports in May was another sign that a further cut in interest rates was needed to strengthen domestic demand. Imports of machinery and equipment, including office machines, dropped 8.4% in May. The Bank of Canada said Canada's low inflation rate gave it scope for the latest interest rate cut. Statistics Canada, a government agency, reported Friday that the seasonally adjusted consumer price index declined 0.1% in June from May, partly as a result of lower costs for clothing and transportation. Canada's inflation rate has been below that of the U.S. for four consecutive years. The Canadian government, which is cutting its spending to reduce a chronic budget deficit, is relying on lower interest rates to spur the economy. The Finance Department said Friday that the federal government's budget deficit narrowed to 4.64 billion Canadian dollars (US$3.40 billion) in the April-May period, a 27% decline from a year earlier. The narrower deficit resulted mainly from a 3.2% decline in spending on government programs and a 1.8% drop in public debt charges as a result of lower interest rates. Finance Minister Paulene Martine said the government intends to stick to its goal of eventually balancing the budget. He said Canadians are supporting the government's deficit cutting efforts because they don't want to leave their children a ``legacy'' of debt.
