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Unity issue shakes economy

Published Oct. 12, 2005

Constitutional uncertainty has led to a record one-day jump of 2 percentage points in interest rates to support the battered dollar.

The political war of words over the Oct. 26 vote on Canadian unity has shaken financial markets, dragging down the currency.

The rate increase Thursday stabilized Canada's dollar around 80 U.S. cents, but it fell to as low as 79.49 cents Friday.

In response, banks raised their prime lending rates to 8.25 percent from 6.25 percent, and consumer loan and mortgage rates also climbed.

Finance Minister Don Mazankowski blamed the increases on "international marketplace turbulence with the focus on the domestic political scene."

The sharply higher rates, which financial analysts suggest should be temporary, could have a damaging effect on consumer confidence, Mazankowski said.

A vote in favor of the constitutional package aimed at ending the threat of Quebec separation would lead to lower rates, economists said, while its defeat would prolong uncertainty about Canada's future.