Canada Unexpectedly Cuts Rate to 4.25 percent

The Bank of Canada unexpectedly cut its main interest rate for the first time since April 2004, saying the higher Canadian dollar and financial market ``volatility'' restrained inflation more quickly than expected.

The target rate for overnight loans between commercial banks was lowered a quarter point to 4.25 percent, reversing an increase made in July.

The currency's rise to record highs this year slowed the exports that make up 30 percent of the country's economic output and pushed the central bank's preferred inflation measure below a 2 percent target. Today's move heeds calls by companies ranging from Montreal jet maker Bombardier Inc. to Vancouver lumber producer Canfor Corp., as well as provincial premiers, who said the dollar's rise was crushing manufacturers.

The central bank said today that ``difficulties'' caused by the collapse of the U.S. subprime mortgage market will take longer than expected to fix. Also, policy makers said weaker U.S. demand will hurt exporters, while ``competitive pressures'' related to the currency's ``spike'' last month are curbing inflation.

Canada Unexpectedly Cuts Rate to 4.25 percent, Bloomberg
12/4/2007 6:21:55 AM