Sunday, 18 April 2021 09:26 GMT

Bank of Canada cuts key lending rate to 0.5 percent

(MENAFN - AFP) Canada's central bank cut its key lending rate by a quarter-point to 0.5 percent Wednesday in a bid to stimulate an economy that fell into recession in the first half of the year.

It is the second time this year that the Bank of Canada has slashed rates to revive the economy -- badly hit by lower global oil prices -- after the central bank sprang a surprise on investors and households in January.

The Canadian dollar promptly slid further on the news.

"The Bank's estimate of growth in Canada in 2015 has been marked down considerably from its April projection," the Bank of Canada said in a statement, announcing its latest move.

Borrowing rates were already at a historic low in a bid to re-energize the Canadian economy.

"Recent indicators suggest a rebound in the US economy in the second half of this year, and growth is expected to be solid through the projection," the bank said.

"In contrast, China is slowing amid an ongoing process of rebalancing to a more sustainable growth path.

"This has pulled down prices of certain commodities that are important to Canada's exports."

There have been growing fears about the state of the Canadian economy.

Earlier this month, two major banks -- Nomura and Bank of America Merrill Lynch -- warned that it was heading for recession.

"The downward revision reflects further downgrades of business investment plans in the energy sector, as well as weaker-than-expected exports of non-energy commodities and non-commodities," the central bank said.

"Real GDP is now projected to have contracted modestly in the first half of the year, resulting in higher excess capacity and additional downward pressure on inflation."

The bank did not specifically use the word "recession", but a recession is defined as two consecutive quarters of contraction.

"The Bank expects growth to resume in the third quarter and begin to exceed potential again in the fourth quarter, led by the non-resource sectors of Canada's economy," it said.

"Outside the energy-producing regions, consumer confidence remains high and labor markets continue to improve."

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