The Bank of Canada cut its benchmark interest rate on Tuesday to an historic low of 0.25 percent and made no explicit commitment on taking nonconventional measures to spur the economy even as it predicted a deeper-than-expected recession. It took the unusual step of providing guidance on rates, saying the overnight rate will stay at 0.25 percent until mid-2010.
"Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target," the bank said in a statement.
The rate cut took markets by surprise and triggered a fall in the Canadian dollar versus the US dollar to C$1.2499, or 80.01 US cents immediately after the decision, from around C$1.24, or 80.65 US cents. Canadian 3-month Treasury bill yields also fell.
The central bank on Thursday will outline its strategy for possible nonconventional measures such as creating money to buy securities, but its statement on Tuesday gave no indication of its willingness to actually start using those policies now.