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TD Economics Commentary

The Bank of Canada today announced that it is lowering its target for the overnight rate by another one-quarter of a percentage point to 1/4 per cent.  The BoC went on further to state that, should inflation remain under control, then they would hold their current policy rate till the end of the second quarter of 2010.

This lowering of the overnight rate has been brought about by the intensified global recession and the relentless sense of uncertainty in world markets and, both consumer and business sentiment.  The recession in Canada will be deeper than expected with the economy expected to contract by 3.0% in 2009. The Bank now expects the recovery to be delayed until the fourth quarter and to be more gradual.

The continued fear amongst economic commentators has been that inflation would rear its ugly head due to all this monetary stimulus.  The BoC, however, expects core inflation to diminish through 2009 gradually returning to the 2.0% target in the third quarter of 2011.

The next scheduled date for announcing the overnight rate target is 4 June 2009