By Chris Fournier Dec. 9 (Bloomberg) -- Canada’s currency declined for the first time in three days after the central bank reduced its target lending rate by more than anticipated to a half-century low and signaled more action may be needed to spur growth. Policy makers lowered borrowing costs by 75 basis points to 1.50 percent, the Ottawa-based central bank said in a statement today. Economists predicted the half-point reduction, according to the median of 23 estimates in a Bloomberg survey. “The bank’s move today just underscores how rapidly conditions have deteriorated globally and now in Canada as well,” said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. “The market today is focused on the elements of the statement that point to the deterioration in global growth, which certainly isn’t positive for commodity prices and isn’t positive for economies such as Canada’s that rely heavily on their export sector.” The Canadian dollar weakened 1.4 percent to C$1.2682 per U.S. dollar in Toronto at 10:19 a.m., from C$1.2502 yesterday. One Canadian dollar buys 78.85 U.S. cents. The loonie has lost 19 percent in six months as the global recession reduced demand for commodities, which generate about half of the export revenue of the world’s eighth-largest economy. Crude oil prices have dropped by half in 12 months. “The global recession will be broader and deeper than previously anticipated,” the central bank said in a statement from Ottawa today. Canada’s economy is “now entering a recession” because of weak global economic activity. Rate Reductions Employers cut 70,600 jobs in November, almost triple economists’ projections, Statistics Canada reported Dec. 5. Canadian new-home starts fell more than economists forecast last month, a separate report showed yesterday. Canada’s dollar could “very easily” exceed C$1.30 by year-end, Malyon said. The European Central Bank cut its main refinancing rate by 0.75 percentage point to 2.5 percent on Dec. 4, the biggest reduction in its 10-year history. The Bank of England that day lowered its rate by one percentage point to 2 percent. Canada’s decision comes one week before the U.S. Federal Reserve’s next meeting, followed by the Bank of Japan. “Given that the market had partially priced in a 75 basis- point reduction, I think the impact on currency would be muted,” said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. “In the case of Canada, the impact for the economy would be positive and ultimately for the currency, a mild positive.” RBC Capital predicts the loonie, as the currency is known for the national bird on the one-dollar coin, will trade at C$1.27 at the end of this year. The yield on the two-year government bond fell seven basis points, or 0.07 percentage point, to 1.51 percent in Toronto. The price of the 2.75 percent security due in December 2010 climbed 13 cents to C$102.40. To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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