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.
From Keith Baker from the Mortgage group.