5 of 6 big Canadian banks see jumbo rate cut after surprisingly soft inflation

financialpost.com:

All but one of Canada’s six biggest lenders now expect the central bank to cut borrowing costs by half a percentage point after inflation cooled by more than expected last month.

Toronto-Dominion Bank is now the only major lender to see the odds of either a 25 or 50 basis-point cut next week as a coin flip, following the latest report that showed inflation fell below the Bank of Canada’s two per cent target for the first time in more than three years.

Bank of Nova Scotia, Bank of Montreal and National Bank of Canada meanwhile joined Royal Bank of Canada and Canadian Imperial Bank of Commerce, changing their calls from the previous 25 basis-point forecasts for the Oct. 23 rate decision.

The shift highlights a growing consensus that a gradual easing pace from policymakers may not be sufficient to prevent a sustained undershoot of the inflation target as Canada’s economy continues to weaken.

A majority of traders in overnight swaps also increased their bets that the Bank of Canada will accelerate its pace of rate reduction after cutting by a quarter percentage point at each of its past three meetings. The benchmark overnight rate is currently 4.25 per cent.

Last month, governor Tiff Macklem said the Bank of Canada could cut interest rates faster if inflation and the economy looked to be slowing by more than forecast. By most measures, that’s already happening. Headline inflation averaged a two per cent yearly pace in the third quarter, below the 2.3 per cent officials had forecast in July, and economic growth is tracking well below their estimate.

And while Canada’s unemployment rate ticked down to 6.5 per cent in September, the country’s labour market has weakened considerably over the past year as population growth