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Economy hit but 'sky is not falling,' top bank chief says

Canada's central banker says that although the dollar and stock markets are plunging, the housing boom has faded and jobs are disappearing, the "sky is not falling."

Bank of Canada Governor Mark Carney said the economy is contracting with a recovery not expected until late next year.

While trying to reassure Canadians, Carney said the country is doing better than others as the central bank moved early to cut interest rates and worked to stabilize credit markets.

Further interest rate cuts are predicted even as the bank has trimmed 2.25 percent from its key rate in the last 10 months.

Canada's dollar, free falling to below 79 cents U.S. from about $1.10 U.S. a year ago, could help head off a recession as this makes the country's exports more competitive in price.

Fewer Canadians are crossing the border to shop with the dollar at a three-year low, but travel agents say it isn't having any impact on the number of people, including "snowbirds," planning trips to the United States.

The dollar's weakness is blamed on a stronger U.S. dollar and the decline in price for Canada's major commodities including crude oil, metals and minerals.

The Conference Board of Canada said Friday the financial turmoil in the United States will limit Canadian economic growth to 0.8 percent this year, but Canada will avoid a recession.

Credit guarantee

The Canadian government will temporarily guarantee wholesale bank borrowing to ensure continued access to loans and mortgages.

Finance Minister Jim Flaherty said the government will create the Canadian Lenders Assurance Facility to offer insurance on wholesale term borrowing that banks need to fund operations and make credit available.

"Canada's banks are well capitalized and financially sound with or without this federal government loan insurance," said Nancy Hughes Anthony, president of the Canadian Bankers Association.

For now, the government isn't raising the current $100,000 (Canadian) insured limit on bank and investment accounts.

News in brief

• Postal rates will rise again in January as the price of mailing a first-class letter across Canada jumps by 2 cents to 54 cents (Canadian). As well, Canada Post will double the price for mailing thick envelopes widely used to ship Internet purchases. Rising costs are blamed.

• The number of suspected cases in an E. coli outbreak traced to hamburgers from a Harvey's restaurant in North Bay, Ontario, has risen to 190. Health officials said almost all of those affected have received medical treatment and are recovering at home.

• The Canadian Food Inspection Agency is warning the public not to consume Dunn's Famous brand smoked meat pouches as they could be contaminated with Listeria bacteria. The beef from Les Salaisons Desco Inc. of Quebec is sold only by Costco in Quebec, the Atlantic Provinces and eastern Ontario. Meanwhile, the Toronto Maple Leaf Foods plant at the center of a listeriosis outbreak that killed 20 people has been allowed to reopen by authorities.

Facts and figures

It's costing about $1.30 in Canadian funds, with bank exchange fees, to buy one U.S. dollar.

Canada's currency fell to a wholesale rate of 78.68 cents U.S. on Friday while the U.S. dollar returned $1.2709 Canadian.

The Bank of Canada trimmed its key interest rate by another quarter of a percentage point to 2.25 percent while the prime lending rate dropped to 4 percent at commercial banks.

Stock markets had another tough week with the Toronto exchange slumping to 9,050 points on Friday and the TSX Venture index was down to 819 points.

Lotto 6-49: (Wednesday) 8, 9, 12, 20, 42 and 45; bonus 39. (Oct. 18) 11, 13, 26, 32, 34 and 44; bonus 2. Super 7: (Oct. 17) 13, 14, 15, 25, 36, 38 and 44; bonus 24.

Regional briefs

• The turbulent financial situation that has cost thousands of Ontario manufacturing jobs led Premier Dalton McGuinty to predict a $500-million (Canadian) deficit this fiscal year. The government will postpone some spending, including the hiring of 9,000 nurses, while approving a 12.25-percent raise for doctors in a four-year deal.

• Boom times in Western Canada will mean the largest single-year tax cut for Saskatchewan, while British Columbia Premier Gordon Campbell is planning accelerated tax cuts and other measures in response to the global economic crisis.

• A judicial recount of the federal election votes in Egmont, Prince Edward Island, has confirmed that Conservative Gail Shea won on Oct. 14. The recount narrowed Shea's margin of victory over Liberal Keith Milligan to 55 votes from 62.

• Mumba, a tea-drinking bachelor gorilla from the Granby Zoo near Montreal, has died at age 48. He was the zoo's star attraction for more than 40 years and was believed to be the second-oldest male of his species living in captivity in the world.

Jim Fox can be reached at [email protected]

Economy hit but 'sky is not falling,' top bank chief says 10/25/08 [Last modified: Wednesday, November 3, 2010 5:13pm]
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