Analysts split on rate cut size

March 3, 2008
3 March 2008
 
Analysts split on rate cut size
 
The following article is excerpted from the 3 March 2008 edition of “globeandmail.com”.
 
Mark Carney steps into the spotlight this week and one thing is clear: The new Governor of the Bank of Canada will lower interest rates.
 
But what comes next is a complete mystery, as he and the interest-rate-setting Governing Council weigh the impact of a sputtering U.S. economy on Canada's own economic growth.
 
Financial markets will be watching Ottawa this week to see how Canada's new central bank governor intends to confront the country's weakest economic growth in 12 years.
 
Mr. Carney, the 42-year-old former investment banker who replaced David Dodge on Feb. 1, leads his first meeting of the rate-setting council today. The Bank of Canada will release the result of those deliberations tomorrow at 9 a.m. (ET).
 
Investors are sure of only one thing: Mr. Carney and his five deputies on the policy committee will lower their benchmark lending rate from the current 4 per cent. Mr. Carney said as much in his first speech last month in Vancouver. Beyond that, Mr. Carney's Bank of Canada remains something of an enigma.
 
There is no consensus among economists and investors on whether Mr. Carney will stick to Mr. Dodge's preference for cautious, quarter-point reductions of the key lending rate, or whether his background in global financial markets will lead to a bolder approach.
 
The yield on bankers' acceptance contracts, which is determined by where investors think the official lending rate is headed, was 3.64 per cent at the end of trading Friday on the Montreal Exchange. That suggests there were about as many bets the Bank of Canada would lower its key rate to 3.75 per cent as there were estimates for a more dramatic drop to 3.5 per cent.
 
Of 26 economists surveyed by Bloomberg News, 13 predicted a quarter-point cut and 13 predicted a half-point reduction…
 
…The calculation Mr. Carney and his deputies have to make is the toll a sputtering U.S. economy will have on Canada, which ships about 80 per cent of its exports to markets on the other side of its southern border.
 
Finance Minister Jim Flaherty in last week's budget slashed his official forecast for economic growth in 2008 to 1.7 per cent from an October estimate of 2.4 per cent, citing a weaker U.S. economy and turbulent financial markets.
 
That would be the slowest growth rate since Canada's GDP expanded 1.6 per cent in 1996…
 
…The government reported that gross domestic pro

Topic(s): 
Canadian Economy & Politics
Information Source: 
Canadian News Channel
Document Type: 
Email Article