The Bank of Canada announced this morning that it is lowering its target for the overnight rate by 25 basis points to 4.5%. The Bank Rate is reduced by 25 bps to 4.75%.

According to the central bank, the slowing in economic growth in Canada that began in late 2000 has continued through the first part of this year, largely as a result of reduced U.S. demand for Canadian products. At the same time, final domestic demand in Canada has continued to exhibit underlying momentum.

The bank says these conditions should put downward pressure on core inflation, which is expected to fall from above 2% currently to just below 2% by the end of 2001. Total CPI inflation, which has recently been above the bank’s 1% to 3% inflation-control target range because of rising energy prices, is expected to remain above 3% over the next few months, before moving down to about 2% by the end of the year.

The bank says that today’s reduction in interest rates will support aggregate demand in the economy consistent with keeping inflation close to the it’s inflation-control target of 2% over the medium term.

In its policy statement, the bank notes that it “continues to view the possibility that the economic slowdown in the United States could last longer than anticipated as the main risk to the outlook for the Canadian economy. At the same time, given the sustained increases in energy prices, the bank will need to be vigilant for signs of broader effects on consumer prices generally.”

The Bank’s next scheduled date for announcing policy interest rates is July17.