Canada cuts rates due to US crisis, C$ strength

04 December 2007 18:06  [Source: ICIS news]

TORONTO (ICIS news)--The Bank of Canada on Tuesday lowered its target for the overnight rate by 0.25 percentage point, to 4.25%, because of the impacts of the US subprime mortgage crisis and the high Canadian dollar (C$) on the country's economy.


Global financial market troubles, triggered by the US sub-prime mortgages situation, had worsened since mid-October and credit conditions had tightened, the bank said, adding it expected the difficulties to persist for a longer period of time.


Canadian exports were at risk as the outlook for the US economy, and in particular the US housing sector, had weakened, the bank said.


It also noted the strong Canadian dollar vis-à-vis the US dollar.


The Canadian dollar spiked at well over parity last month but has since then fallen back to around parity with the US dollar.


Following the bank’s announcement, the Canadian dollar was down 1.24 US cents, to 98.78 cents on Tuesday morning.


The bank had come under intense pressure in past months to cut rates against a backdrop of plant closures and mounting job losses in the manufacturing sectors - including plastics and chemicals - of Ontario and Quebec.


Two thirds of Canada's chemical production is exported, with 80% of the exports going to the US, according to Canadian Chemical Producers Association.

By: Stefan Baumgarten
+1 713 525 2653

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