Former Deputy Governor of the Bank of Canada, Paul Beaudry, has stated that officials should lower borrowing costs by half a percentage point later this month.
Beaudry indicated that there are "compelling reasons" to "quickly adjust interest rates back to a near-neutral level," including the enhancement of optimism among households and businesses.
Currently, policymakers are more confident that wage growth, expectations, and business pricing are moving in the right direction. As the central bank focuses on a sustainable return of the inflation rate to 2%, Beaudry believes that borrowing costs will decrease more rapidly.
In an interview on Monday, Beaudry said, "The preconditions for starting to cut interest rates have already been met; you want the rate cuts to happen quickly."
"I would really bet on 50 basis points," he said, referring to the Bank of Canada's meeting on October 23rd. Reintroducing some monetary stimulus in the face of a slowing Canadian economy would also help "convey this message to consumers and businesses."
He stated, "When you want to turn things around, you need to boost confidence."
Last Friday's unexpected rise in U.S. employment data led to a shift in interest rate expectations in the North American market. This prompted overnight swap traders to anticipate that the Bank of Canada's overnight benchmark interest rate would reach around 3% by next July and estimated about a 25% chance of a 50 basis point rate cut by the central bank later this month.
In the interview, Beaudry mentioned that the Bank of Canada tries to communicate its direction by sharing its economic outlook and does not make decisions that shock participants unless necessary.
He said, "It really does not like to surprise the market, but based on the data, it is ready to surprise the market if needed."
The benchmark interest rate of 4.25% continues to drag on Canada's economic growth. The central bank has indicated that the neutral interest rate (the theoretical interest rate level that neither restricts nor stimulates the economy) is 2.75%. Although Beaudry acknowledged the uncertainty of the exact level, he reiterated that its clear borrowing costs should "quickly decrease and reach this level.""Things will move very quickly until we enter that area. Then there will be some searches," he said.
Statistics Canada will release employment data for September on Friday, and Boadley said that officials may still view the high unemployment rate (which reached 6.6% in August) as broader evidence of a weak labor market. Only if the underlying inflation rate rises or improves will they change their view of the labor market.
He said: "Even if the situation in the next report is slightly stronger, I don't think it will greatly change the Bank of Canada's perspective." "There should be a significant interest rate cut."