The Bank of Canada (BoC) lowered their overnight rate by a further 0.25% to 2.25%  at their scheduled meeting today.  This brings a 0.75% cut to the overnight rate in the last 2 weeks.

The BoC cited 3 major interrelated aspects that have profoundly and negatively impacted the Canadian economy:

1. The widening and deep global financial crisis has led to severe liquidity issues in financial markets.
2. It appears as though the global economy is heading into a mild recession and,
3. Commodity prices are in free-fall.

The BoC expects growth to be sluggish through the 1st quarter of next year and then to improve throughout the remainder of 2009 with above-potential growth in 2010 (3.40% growth in GDP).

Canada’s economy and strong financial system will benefit from the actions of the G7 countries to stabilize their economies.

What is most pertinent to note in the BoC announcement of today is that they see core inflation dropping to below 2% through 2010 and total CPI dropping to below 1% in 2009 and moving up to 2% by the end of 2010.  Furthermore, the BoC anticipates that further monetary stimilus may be required (i.e. potential for a further rate drop).

The next scheduled meeting for the BoC is set for December 9, 2008.

Click on the link below for an excellent summary of why the Canadian housing mortgage market is very stable and in better shape than our neighbours in the US.

Canadian Housing Mortgage Market Summary

In recent weeks, a great deal of attention has been given to the health of the Canadian mortgage market in relation to events south of the border. The recent action by Congress in Washington has heightened scrutiny on the Canadian mortgage and real estate markets.

Numerous studies have been released regarding Canada’s economic situation and there is no doubt that both the real estate and mortgage markets are slowing in Canada.

CAAMP’s chief economist Will Dunning has prepared a report that provides a timely review of the market and key indicators that separate Canada from the U.S.  Click on the link below to see the report:

Risks Are Maintained Within the Canadian Mortgage Market

Major central banks (across the world) slash rates in an extraordinary move to ease the global credit crisis.  Central banks in Canada, the United States, Britain, the European Union, Sweden and Switzerland cut key lending rates by half a percentage point.

The move came after a sharp overnight drop in Asian markets and U.S. stock futures that threatened to spark another North American selloff Wednesday. The Dow Jones industrial average lost 508 points Tuesday, bringing down markets globally. Britain also was rattled by a deepening banking crisis, forcing the government to announce a $80-billion bailout package.

The Bank of Canada warned that the U.S. downturn and weakness among key trading partners is hurting Canada’s exports. Plus, the domestic side of the economy is no longer on fire as commodity prices drop and the Canadian dollar slides, the bank noted.

Inflationary pressure is no longer an issue (according to the Bank of Canada) since demand from Canadian consumers and businesses is no longer strong.  It is very interesting to note that the Bank of Canada (in their press release of today) also noted that this reduction in the overnight rate does not preclude them from perhaps decreasing the overnight rate further when next they meet on October 21, 2008.

This rate drop should work it’s way through to prime and will benefit variable rate clients.