Canada cuts key rate in a surprise move

Canada’s central bank unexpectedly lowered its key interest rate by a quarter of a point Tuesday to combat threats to the country’s economy posed by a strong Canadian dollar and the global credit crisis.

The Bank of Canada cut its target interest rate for overnight loans between commercial banks to 4.25%, reversing an increase in July.

In a statement, the central bank indicated that the strong Canadian currency had reduced prospects for inflation over the next several months, diminishing concern about a rate cut’s effect on prices. The bank also cited an “increased risk” to Canadian exports posed by the currency’s strength, as well as “global financial-market difficulties.”

Canada’s dollar fell to its lowest level in 11 weeks against the U.S. dollar after the rate cut, which had been anticipated by a minority of economists surveyed by Bloomberg News.

Although the Canadian policymakers didn’t signal that they intended to ease again at their next meeting Jan. 22, 14 of 16 economists surveyed by Bloomberg after Tuesday’s action predicted that the central bank would cut rates again next month.

In trading Tuesday, the U.S. dollar rose to 1.0149 Canadian dollars, up from 99.87 Canadian cents late Monday. The greenback last month reached a 30-year low of 90.58 Canadian cents.