Canada follows U.S. in cutting interest rates


Canadian Dollar Falls
As Bank Reduces Rate,
Signals It's Not Done

By Haris Anwar
Bloomberg News Service
Tuesday, March 4, 2008

TORONTO -- The Canadian dollar fell to the lowest in more than a week after the central bank reduced the benchmark interest rate a half-percentage point and signaled it probably will cut again to help the economy cope with a slowdown in the United States.

The currency stalled this year, after gaining about 17 percent in 2007, on speculation the Bank of Canada would lower borrowing costs amid signs the U.S. is headed into a recession. Canada ships about 80 percent of its exports to the U.S.

The central bank "has some very dovish words for the Canadian economy," said John Rothfield, a senior currency strategist at Bank of America Corp. in San Francisco. "Retaining the full easing bias and saying the risks to growth are intensifying have caught investors' attention."

Canada's dollar fell 0.2 percent to 99.18 cents per U.S. dollar at 10:09 a.m. in Toronto from 99 cents yesterday. One Canadian dollar buys $1.00831.

The central bank lowered the benchmark interest rate to 3.5 percent from 4 percent, the third reduction since December. Thirteen of 26 economists in a Bloomberg News survey had forecast the Bank would cut by 25 basis points, or 0.25 percentage point. The other 13 anticipated a reduction of 50 basis points.

"Further monetary stimulus is likely to be required in the near term," the central bank said in a statement from Ottawa. Signs of economic slowdown in Canada are "materializing and, in some respects, intensifying."

Tumbling exports to the U.S. will limit 2008 economic growth to a seven-year low of 1.8 percent, according to the bank, and have erased the country's broad trade surplus for the first time since 1999.

The yield on Canada's two-year government bond due December 2009 fell 4 basis points to 2.67 percent, reaching the lowest since 2004. The price of the 4.25 percent security gained 7 cents to C$102.66.

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