INTEREST RATES: Central Bank urged to cut rates

The Bank of Canada should cut interest rates to a record low next week to stimulate the economy, a panel of private-sector economists said Thursday as evidence of a deepening recession -- globally and in Canada -- mounted, including a major drop in Canadian home sales and home prices.

The C.D. Howe Institute panel called for a further half-point cut in the bank's trendsetting target rate to one per cent. One of the 10 members called for a full-point reduction, and another for a whopping 1.25-point drop to just 0.25 per cent.

The half-point recommended by the panel would likely trigger a matching cut in the chartered banks' blue-chip prime rate -- to which business and consumer floating-rate loans, including mortgages, are tied -- to three per cent from an already all-time low of 3.5 per cent.

The need for further housing-market stimulus was highlighted by the Canadian Real Estate Association, which reported that home sales in December fell 1.8 per cent from November to their lowest level since 2000.

The average price of a home plunged 11 per cent from a year earlier in December and was down for the year as a whole, ending the nine-year housing boom of steady price gains.

"Average prices will remain under pressure during the Canadian economic recession," warned association chief economist Gregory Klump. "There has been a fundamental shift in consumer confidence, with job insecurities prevailing in every region of Canada. That is unlikely to change until the worst of the recession is behind us."

The industry association appealed to the federal government to include measures in its Jan. 27 budget to stimulate housing, including an increase from $20,000 to $25,000 in the amount homebuyers can draw tax-free out of their RRSPs for a down payment, and expanding the provision to include more than just first-time home purchasers. However, association president Calvin Lindberg cautioned that "moderating home prices in Canada should not be confused with the downturn in the U.S. housing market" that pushed that giant economy, and in turn the global and Canadian economy, into recession.

The U.S. recession is still deepening, reports suggested Thursday. "Consumer sentiment reached a six-year low as Americans continued to be rocked by increasing job losses, poor holiday-shopping season reports, and the ongoing inability of the government and the private sector to stabilize the economy," RBC said in a report based on a survey of U.S. consumer attitudes and spending.

Considering the U.S. consumer accounts for 70 per cent of that economy's GDP, and the U.S. accounts for 75 per cent of Canadian exports, that doesn't bode well for Canadians, either. The mood of Canadian exporters has also hit an all-time low. But it was concerns about domestic sales prospects that weighed most heavily on exporters, Export Development Canada chief economist Peter Hall said Thursday in releasing results of the fall survey on the confidence of exporters. Just 28 per cent -- the lowest share ever by a wide margin -- expected a near-term increase in domestic sales, only 12 per cent expected an improvement in the domestic economy, and a record high 57 per cent expected a further deterioration.

"Over the past five years, exporters were able to count on a strong domestic market to tide them through the relentless rise in the Canadian dollar," Hall said. "Last fall, that upbeat view of the domestic scene soured considerably."

(prepared by Eric Beauchesne/Vancouver Sun)