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The Bottom Line

By Anne D. Picker, International Economist, Econoday     Monday, March 5, 2001

Central banks have an active week ahead. The Bank of Canada will probably cut interest rates on Tuesday. Analysts are split between a 25 and 50 basis point cut. The central bank lowered its policy making rate 25 basis points to 5.75 percent in January, citing reduced economic growth brought on by the U.S. slowdown. Next week's policy announcement is the first under new Governor David Dodge, who took over when Gordon Thiessen retired January 31.

Japan is expected to announce emergency measures to stimulate the economy next week after the stock market dropped to a 15 year low and data indicated the country's recovery was faltering. The emergency package is expected to include measures to force banks to write off bad loans more aggressively, to boost the housing market and to encourage stock market investment, particularly by allowing companies to buy back shares. It is considered unlikely the package will include the politically sensitive use of more public funds either to boost the market or to bail out banks after previous attempts failed to work and drew strong criticism. The Bank of Japan is also likely to face renewed calls to take more drastic action to relax monetary policy after last week's interest rate cut failed to buoy the Nikkei 225. Prime Minister Mori faces a vote of confidence again on Monday.

The Bank of England is expected to leave their policy making rate at 5.75 percent. The bank lowered rates 25 basis points at their January meeting. Also in Britain, Chancellor of the Exchequer Gordon Brown is expected to unveil his new budget on Wednesday in the run up to British general elections. Changing interest rates at this point in time is as ticklish for the Bank of England as it was for the Federal Reserve just prior to the U.S. elections last fall.

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