Bank of Canada cuts key interest rate to 0.25%

The bank's new forecast sees the economy growing by 2.5 per cent in 2010 and 4.7 per cent in 2011.

"In an environment of continued high uncertainty, the global recession has intensified and become more synchronous since the bank's January monetary policy report update, with weaker-than-expected activity in all major economies," the bank said in Tuesday's announcement.

"Deteriorating credit conditions have spread quickly through trade, financial, and confidence channels," the bank said, adding that measures taken by the G20 to bolster the global financial system have taken longer than expected to enact.

On Thursday, the bank will provide more details on its view for the economy when it releases its next monetary policy report.

On the inflation front, the bank sees core inflation diminishing through 2009, before gradually returning to the bank's two per cent target in the third quarter of 2011. Overall consumer price index inflation is expected to bottom out at -0.8 per cent in the third quarter of 2009 before rebounding.

In the wake of the central bank's decision to cut lending rates, Canada's major banks quickly moved to lower their prime rates — what they charge their top customers — by one-quarter of a percentage point to 2.25 per cent.

With the bank having exhausted its options on rate cutting, economists are looking to see what the central bank's next steps will be when it comes to stimulating the economy.

"Quantitative easing [expanding the money supply] is looming," said economist Michael Gregory of BMO Capital Markets. "I see printing money, high-powered money, as providing excess reserves in the banking system, so the banks will do something with that extra money."