ZT: Canada's central bank cuts rate by three-quarters of a point

TORONTO (AP) -- Canada's central bank cut its key interest rate by three-quarters of a percentage point on Tuesday, saying the country is entering a recession as a result of global weakness.

It is the largest cut in the overnight rate since October 2001 in the aftermath of the Sept. 11 attacks and brings the key rate to the lowest level since 1958.

The cut to 1.50 follows two reductions in October that lowered the rate by 75 basis points.

The Bank of Canada said the outlook for the world economy has deteriorated significantly, and the global recession will be broader and deeper than previously anticipated.

"Global financial markets remain severely strained," the bank said in a statement.

The consensus of economists was for a half-point cut, but many also speculated that bolder action may be required.

Deflation seems to be a major concern.

"The recent declines in terms of trade, real income growth, and confidence are prompting more cautious behavior by households and businesses," the bank said.

The statement does not say how long the bank expects the slump to last but said bold actions by governments and central banks are beginning to loosen up global money markets and support economic growth.

The lower interest rates, if passed on by Canada's big commercial banks, encourage businesses and households to borrow and spend, thereby stimulating economic activity.

Canada's private banks initially declined to pass on to consumers the full half percentage-point cut in interest rates announced by central banks around the world on Oct. 8 -- a troubling move that affected Canadians' ability to get or afford loans for mortgages and businesses.

But most of the banks cut the interest rates by a full half point after the Canadian government announced a $25 billion Canadian ($19 billion) bailout that would see the government buy mortgages from the banks.