Economists Forecast Bank Of Canada To Cut Interest Rate Next Month

September 18, 2008 12:27 p.m. EST

Ottawa, Ontario (AHN) - Canadian economists are urging the Bank of Canada to cut interest rates soon to reverse the negative effect of the global financial crisis on growth and liberalize credit to halt the rise of inflation.

David Wolf, chief economist of Merrill Lynch Canada, explained to the Globe and Mail, "The deepening of the global financial crisis and associated pressures on global growth and commodity prices are unambiguously deflationary for Canada... As a result, we are accelerating our expectations for Bank of Canada easing ahead."

Wolf said he expects Canadian central bank Governor Mark Carney to cut the bank's benchmark rate by at least a quarter of a percentage point on its next rate setting date by Oct. 21. He foresees the bank further reducing interest rates until it hits below 2 percent by middle of 2009.

The current key rate is 3 percent since April.

The Bank of Canada, in response to a U.S. initiative to swamp money markets with $247 billion following the Lehman Brothers bankruptcy and the Merrill Lynch sale, said Thursday it will establish a $10-billion reciprocal currency arrangement which could be tapped by Canadian financial institutions that may run out of cash.

The news lead to a jump by almost 500 points by midmorning at the Toronto Stock Exchange.