Bank Of Canada Cuts Rates In Response To Soft Economy

By Agence France-Presse The Bank of Canada, concerned about recent developments that have weakened the Canadian economy, shifted gears July 15 and cut key interest rates after a 15-month effort to tighten credit. The central bank lowered its target for the overnight rate by 25 basis points to 3%, saying "unanticipated developments" have hurt economic growth. It also lowered its bank rate by the same amount to 3.25%. The central bank said the outbreak of SARS (severe acute respiratory syndrome) and a single case of mad cow disease that prompted trading partners to ban Canadian beef were among factors hurting the economy. Canada had been the only major industrialized country boosting rates over the past year, having lifted its base rate five times from a low of 2% in April 2002. The Canadian economy grew 3.3% last year and added 0.6% in the first quarter. The official government forecast for 2003 growth has been cut to 2.2% from 3.2%, and some private economists are forecasting even lower growth. Meanwhile the bank's inflation fears have largely dissipated. "Both inflation and inflation expectations have declined more rapidly than the bank had expected," the bank said in a statement. Copyright Agence France-Presse, 2003