Bank of Canada lowers key interest rate

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OTTAWA, Ont. — The Bank of Canada cut its key overnight interest rate to 2.5 per cent on Tuesday, news reports said.

The cut was expected by analysts, according to the Canadian Press, who cited the rapid appreciation of the Canadian dollar against the U.S. dollar.

Reuters said that in the past 12 months, the Canadian dollar has risen in value to 77 per cent of the U.S. dollar from 64 per cent.

Much of the loonie’s growth comes from loss of confidence in the U.S. dollar, CP reported, but some comes from the wide gap in the policy interest rates of the two countries. The overnight lending rate in the U.S. is one per cent, CP said.

The overnight rate, the benchmark for other interest rates throughout Canada, remains half a percentage point above its multi-year low of two per cent, in force in early 2002, Reuters said.

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