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The misconception about low monetary policy, says TD Bank chief economist Don Drummond, derives from thinking that the Bank of Canada rate is the major determining factor in what the chartered banks and financial institutions those not in a fox hole must pay to access capital.

Chartered banks can borrow short term from the Bank of Canada at the low rate, but that represents a tiny portion of institutional borrowing used to Womens Nike Air Max 2015

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At such an historic low, it would be anticipated that borrowing money from banks and other financial institutions in Canada would be easy and cheap, and the economy would come roaring back as consumers borrowed to buy cars, plasma TVs and houses, and businesses borrowed to purchase equipment and expand.

Canada's central bank has already sliced 1.5 percentage points from its so called trendsetting rate since October three points in the last 13 months but the economy continues to slide, and arguably, credit for companies and consumers is as tight as it has ever Air Max Thea Triple White

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Although he disagrees with McCallum's prescription, RBC chief economist Craig Wright also cautions about expecting too much from the Bank of Canada's overnight interest rate moves.

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been.

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Still, Wright argues that Bank of Canada cutting has helped bring down short term interest rates, those based on the prime rate, and that the situation would have been worse but for the central bank's year of easing.

Whether the big banks pass on Tuesday's entire cut, or only a portion, will "depend on the cost of funds (in money markets) that day," said Drummond. He pointed out there is no requirement, or even logic, that dictates the banks have to follow the Bank of Canada's actions.

´╗┐Bank of Canada to chop interest rates again

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Liberal economics critic John McCallum, a former chief economist with the Royal Bank, is also reluctant to criticize the banks for not passing on all the central bank's cuts.

"I think the impact of monetary policy has been blunted by the reaction of banks during this credit crunch, but one can understand the pressures they are under," he says. and United Kingdom on extending credit, saying Ottawa should have moved before the coming Jan. 27 budget to free up auto leasing and enrich the small business lending guarantee.

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"Monetary policy is a very powerful tool, but at times like this conventional monetary policy is not as powerful as it normally would be, so you have to do it more aggressively," said Nicholas Rowe, an economics professor at Air Max Thea Jacquard Women's

finance operations and lend to clients, he explained. Longer term borrowing costs to finance five year mortgages, for instance, have increased because the bond and Nike Air Max Thea Mid Black financial markets are pricing in higher risk during the current economic crisis.

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As well, Canada's chartered banks are balking at obediently following the Bank of Canada's tune, as seen last month when they passed on only two thirds of Governor Mark Carney's dramatic three quarters of a percentage point cut. and Europe, central banks have been even more aggressive with big rate cuts, but have shown only modest, if any, results.

Carleton University.

The panel's median recommendation, and the consensus of most other economists, is for a 50 basis point cut taking the overnight rate to one per cent.

One problem is that monetary policy has a considerable lag of 12 18 months, so in theory the actions taken by Carney a year ago should only now be impacting the economy. The other, says Wright, is that Canada's economic problems are not home grown.

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OTTAWA The Bank of Canada is all but certain to again take an axe to interest rates Tuesday, but as economic woes deepen and money markets tighten despite aggressive central bank action globally a sense of the very real limits of monetary policy is emerging.

But as anyone not recently arrived from Mars knows, the world remains in a vice grip of tight money that has stalled economic progress. Canada's situation is only marginally better because of the conservative lending practices of its banking sector an irony that has not escaped bankers as they listen to the urgings of Carney and Finance Minister Jim Flaherty to lend more.

But with unemployment rising, jobs insecurity growing and corporate outlooks dimming, many Canadian consumers and businesses are trying to pay down debt and take a more cautious approach to borrowing and spending.

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