Canada Lowers Growth Forecast, Signals More Rate Cuts

The Bank of Canada lowered its growth forecast because of weak export demand from the U.S. and said it will probably cut interest rates again this year.

The central bank said today, in an economic forecast paper, that gross domestic product will expand 1.8 percent in 2008, , revising their October prediction of 2.3 percent. Inflation will slow to 1.4 percent in the second quarter, less than the bank's 2 percent target and October's 2.4 percent forecast, as a strong currency makes imports cheaper.

"The weaker U.S. economy will lead to additional downward pressure on Canada's export growth," Governor David Dodge said at a news conference in Ottawa after releasing the new forecast. "Further monetary stimulus is likely to be required in the near term.''

Policy makers reduced their main interest rate a quarter point to 4 percent on January 22, 2008, citing the need for more easing. It is widely believed that the new governor, Mark Carney, who becomes governor on Feb. 1, will cut the rate by a quarter point at each of his first three decisions starting March 4.

The central bank said in its report that "more accommodative monetary policy" in the world's industrialized economies should moderate a global slowdown, and that "lower policy rates" will support Canada's economy in the next two years. The bank said the forecast assumes further rate cuts by the U.S. Federal Reserve, which three days ago made an emergency cut of three-quarters of a point to stave off a recession.