The Bank of Canada is likely to cut interest rates by half a percentage point for a second consecutive meeting, bringing borrowing costs to more neutral levels and better positioning the economy for the potential crosswinds of a tariff war.
Greg Newman, senior wealth advisor and portfolio manager of Newman Group at ScotiaMcLeod and Veronica Clark, economist of Citi, talk about the Bank of Canada 's
“We’re still in that excess-supply zone for the economy and it doesn’t look like the output gap is closing in the direction that the bank wants it to,” Veronica Clark, an economist with Citigroup, said in an interview, meaning the economy is underperforming relative to its potential. “The Canadian economy doesn’t need restrictive rates anymore.”
“There is a reasonable case to be made that the deepening trade uncertainty with the US is alone a justification for an easier stance, to help inoculate the economy from external pressure,” Doug Porter, chief economist at the Bank of Montreal, wrote in a report to investors. As for the central bank’s best response to a trade war, five of 14 economists who answered the question said it should bring interest rates to stimulative levels. Three said policymakers should keep borrowing costs in the neutral range, while two said pausing was the best course of action. One said moving to restrictive rates was the best approach, and three others offered alternative suggestions.
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