Wed Sep 25 10:00:17 UTC 2024: ## Bank of Canada Urged to Cut Rates by 50 Basis Points to Avoid Recession
**TORONTO** – With inflation now at the Bank of Canada’s target of two per cent, economists Steve Ambler and Jeremy Kronick argue that the central bank should implement a larger-than-usual rate cut of 50 basis points at its next meeting. They warn that a smaller cut would keep monetary policy too tight, potentially pushing the economy into a recession.
Despite the recent decline in inflation, the real interest rate, which accounts for inflation, has actually risen slightly. This is due to the Bank’s previous interest rate hikes, which are still having an impact on the economy.
“With the economy slowing and inflation declining, tighter monetary policy isn’t appropriate,” say Ambler and Kronick. “Inflation falling below two per cent may not sound so bad, but if it’s happening because overall demand is falling short of the economy’s capacity to produce goods and services, that’s not a good thing.”
They point to the recent rise in unemployment and the decline in GDP per person over the past eight quarters as evidence that the economy is weakening.
The economists acknowledge that the bank may be hesitant to make a large cut due to concerns about re-igniting inflation, but argue that the potential cost of a recession outweighs the risk.
“A 50-basis-point cut would at least move the real rate down to 1.75 per cent,” they say.
The Bank of Canada is expected to make its next interest rate announcement in the coming weeks.
First Piper 