Posthaste: Bank of Canada can go bigger on rate cuts as Fed 'blows the door wide open'
The United States Federal Reserve made a big splash with Wednesday’s 50-basis-point interest rate cut, prompting some Canadian economists to believe the Bank of Canada could match the move when policymakers meet at the end of October.
So far, Bank of Canada officials have cut interest rates three times by increments of 25 basis points since the beginning of June, leaving its benchmark policy rate at 4.25 per cent.
Following the most recent cut on Sept. 4, some economists said the bank was being too cautious and needed to move faster to get rates into a zone where they are no longer suppressing economic activity.
Economists at CIBC Capital Markets and National Bank of Canada said a larger cut would be “defensible” and “appropriate in our view given the balance of risks in the labour market and on the growth outlook” following the September rate announcement.
Post-Fed, economists think chair Jerome Powell has opened the door wider for Bank of Canada governor Tiff Macklem to make bigger cuts.
“There could be a jumbo cut and the Fed gives (the Bank of Canada) more room because it puts less pressure on the dollar,” Tony Stillo, director of Canada Economics at Oxford Economics, said during a webinar on the state of the Canadian economy.
There were concerns that the Canadian dollar would suffer against its U.S. counterpart as Macklem and his officials began cutting before the Fed, thereby putting the loonie at a disadvantage when it came to interest rate differentials.
Charles St-Arnaud, chief economist at credit union Alberta Central, thinks the Fed’s half-point cut “reduces the hurdle for the BoC to do 50 basis points in October.”
But perhaps more significantly, Macklem said during an interview with the Financial Times that
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