Bank of Canada could cut rates to 2.5% by next year, say economists

financialpost.com:

The Bank of Canada cut interest rates for a third consecutive time by 25 basis points on Wednesday, leaving its benchmark lending rate at 4.25 per cent.

Here’s what economists are saying about the move, and how much more they expect the bank to cut.

The Bank of Canada took a “cautious approach” and played it safe in cutting rates by just 25 basis points, Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said in a note, adding that the latest reduction leaves “rates still well above where they will have to head to get the economy really moving again now that inflation is less of a threat.”

Market-based measures and some economists had upped the odds of a 50-basis-point cut following the release of gross domestic product data on Friday that showed the Canadian economy could post weaker growth in the third quarter than forecast by the Bank of Canada.

It’s possible, Shenfeld said, that bank officials could open the door to rate cuts of a larger magnitude if growth and inflation come in weaker than expected.

“For now, we’re calling for two more 25 basis point moves this year, en route to a roughly 2.5 per cent overnight rate next year, but a disappointment in upcoming jobs data could still compel a bolder pace of easing.”

Statistics Canada released jobs number for August this Friday.

Risks to the economy mean that future rate cuts “lie in the direction of a more aggressive pace,” Stephen Brown, deputy chief North America economist at Capital Economics, said in a note.

Markets, Brown noted, had priced in a 25 per cent chance of a 50 basis point cut at today’s announcement, which he said was “understandable” based on a weaker outlook for GDP and the labour market.

“The tone of the communications was less