Economist says the rate cut this month isn't enough
The Bank of Canada should issue another interest rate cut to address the slow economy as well as the strains in trade, an economist from TD bank said, according to BNN Bloomberg.
In an interview, TD Bank Director and Senior Economist Andrew Hencic pointed out that the interest rate cut that the central bank issued earlier this month not was not enough to improve the country’s labour market.
Notably, the Bank of Canada had issued the first cut to its key policy rate since March. Citing a weakening labour market, the central bank cut the interest rate by 25 basis points, reaching 2.5%.
Hencic said that two cuts to the key policy rate would be beneficial, adding that the next one should be in October and must be in the lower end of the central bank’s target range. The economist said that it would aid in mitigating the weakening economy and the low business investments, which were affected by the ongoing trade war.
He further noted that the country’s inflation rate was slowing down within the last three months, which pointed towards the possibility of issuing another cut on the key policy rate without being too risky.
“We still see that labour market stock is likely to accumulate through the back end of the year, which would take further pressure off prices. That kind of reinforces our view that delivering another cut isn’t going to carry that much risk,” said Hencic.
Meanwhile, Hencic also noted that cutting down interest rates weren’t the best course of action when it comes to the tariffs imposed by the US to Canadian goods. With domestic demand affected by the removal of the retaliatory tariffs to reduce the shock on economic supply, Hencic said that interest rates can help in driving it upwards.
“On the supply side, that really hinges on how the federal government’s going to navigate negotiations with our American counterparts, and what kinds of new investments they can unlock and new trade relationships globally they can look to develop,” he added.
Notably, the Bank of Canada stated that the rate cuts were issued to balance risks as the country faces a weaker economy and less upside risk to inflation.
