The Bank of Canada cut its key interest rate by 25basis points to 2.25%, in an attempt to provide the flagging economy with a further boost. Canada had previously cut rates by 50bp two weeks ago in concert with other central banks worldwide, and has now halved rates since 10 months ago when they stood at 4.5%

Canada’s economy is forecasting low growth rates of 0.6% in both 2008 and 2009 as it deals with what the Central Bank has labelled as the three profound forces. These are the global financial crisis (which has reduced risk aversion), the global economy heading into recession and a sharp fall in commodity prices. Canada’s economy is strongly correlated with the fortune of commodity markets and will also suffer with weakened demand for its good and services

Canada’s currency has devalued dramatically recently in past weeks, and this may help to defer the blow of weak global demand and lower commodity prices. It is trading at slightly over the 1.20 mark in the cross with major trading partner the US. It will continue to see continued selling pressure in this environment, although a slight recovery may be on the cards with some strong data this week, with retail sales figures, CPI figures and of course the BoC monetary policy report due tomorrow

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