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UK, Canada hold key rates steady
Published in The Saudi Gazette on 11 - 09 - 2009

The Bank of England on Thursday left key lending rates unchanged, offered no alterations to its quantitative-easing program and announced no change in the interest rate it pays on reserves banks deposit at the central bank.
Analysts had widely expected the rate-setting Monetary Policy Committee to leave the key lending rate unchanged at a record low 0.5 percent. Few thought there was much prospect for a change in the size of the quantitative-easing plan following the MPC's decision last month to boost the program by an unexpectedly large 50 billion pounds to a total of 175 billion pounds ($290 billion).
The jury had been out, however, on the deposit rate. The Bank of England currently pays 0.5 percent interest, equal to the lending rate, on reserves left on deposit by commercial banks. A cut in the deposit rate would have been aimed at discouraging banks from hoarding cash, encouraging them to instead purchase debt, pushing down market interest rates, and potentially increase lending.
In Toronto, Canada's central bank held its key interest rate at a record low 0.25 percent and reiterated Thursday its intention to hold the rate there until the middle of next year.
The Bank of Canada also said economic growth in Canada in the second half of this year could be stronger than it projected in July. The bank said then the economy would rebound by 1.3 percent in the current quarter and another three percent in the fourth quarter The central bank said, however, the persistent strength in the Canadian dollar remains a risk to a recovery. The Canadian dollar has surged 18 percent since March and is hurting exports.
The central bank reiterated that its plan to keep its key rate as a record-low level is conditional on inflation but they expect the rate to remain at its current level until the end of the second quarter of 2010.
Canada's central bank has sliced 4.25 percentage points off the overnight rate since December 2007.
Mark Carney, the head of Canada's central bank, said in July that Canada's economy was growing again and his latest statement continues to reflect that.
“Stimulative monetary and fiscal policies, improved financial conditions, firmer commodity prices, and a rebound in business and consumer confidence are supporting domestic demand growth in Canada,” the bank said.
Carney is a former Goldman Sachs executive who took over the central bank's top post on Feb. 1, 2008.


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