Bank of Canada cuts interest rates

CANADA/POLITICS - The Bank of Canada took an axe to short-term interest rates Tuesday, warning of a deteriorating global economy and declaring for the first time that Canada has stumbled into a recession.

The central bank cut its trendsetting rate by three-quarters of a point to bring the target for the overnight rate to the lowest level in half a century at 1.5%. The U.S. rate is currently 1%. See other global interest rates.

But it appears the commercial banks will not pass the full reduction through to individuals and businesses. TD Bank – the first to react to the central bank's move – said it would trim its prime lending rate by half a point to 3.5 per cent. CIBC followed with a similar half-point reduction in the prime rate, the benchmark for various individual and commercial loans.

The Bank of Canada's dramatic chop to the overnight rate was the largest since October 2001 in the aftermath of the September 11th terrorist attacks.

The bank said dramatic action was needed given the rapidly growing global recession and the impact of the financial crisis and plummeting commodity prices.