Bank of Canada drops overnight rate to 1%

The Bank of Canada today lowered its overnight rate target by half a percentage point to an all-time record low of 1%, noting that its outlook for the global economy had deteriorated since December, with the intensifying financial crisis spilling over into real economic activity.

The overnight rate has been lowered 3.5% since December 2007.

The bank expects Canada’s economy, which is now in recession, to contract through mid-2009, with real gross domestic product dropping by 1.2% this year on an annual average basis.

But the bank reckons that real GDP will ultimately rebound, growing by 3.8% next year as policy actions begin to take hold in Canada and globally, and with support from the past depreciation of the Canadian dollar.

Meanwhile, the bank expects total consumer-price-index inflation to dip below zero for two quarters in 2009, reflecting year-on-year drops in energy prices, and says it remains committed to a 2% inflation-rate target over the medium term.