Bank of Canada urged to cut key lending rate

Bank of Canada governor Mark Carney recently vowed to take aggressive steps to keep Canada from sliding into recession. (CBC)

The Bank of Canada is being urged to cut a key lending rate by one-half of a point when it makes its next monetary policy decision on Tuesday morning.

The central bank will release its decision at 9 a.m. ET. The overnight interest rate is currently 2.5 per cent after the bank cut the rate by one-half of a percentage point on Oct. 8, when it joined other world central banks in lowering borrowing costs.

"Despite a concerted effort by global central banks and governments to ease market concerns about counterparty risk and shore up investor confidence, financial markets continue to flail with equity markets unable to sustain gains," said Dawn Desjardins, assistant chief economist at Royal Bank.

"Wholesale funding costs have started to ease but remain elevated meaning that the cost of capital for businesses and households is staying high and availability limited," Desjardins said in a recent commentary.

‘The interest rate arguement just pits spenders against savers. Problem is that the spenders far outnumber the savers these days. Welcome to self destructive democracy.’

--echinopora

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The C.D. Howe Institute's Monetary Policy Council, which is made up of economists and academics, called on the Bank of Canada to lower borrowing rates by one-half of a percentage point, although the vote of its members was not unanimous. Six of 10 panel members wanted the target for the overnight rate dropped to two per cent, while three recommended a cut to 2.25 per cent and one recommended holding the rate steady at 2.50 per cent.

The panel said the outlook for growth and prices is very uncertain due to the current turbulence in credit markets and the rapidly deteriorating economic outlook.

C.D. Howe said most members of the monetary policy council felt that the downside risks justified further interest rate easing from the Bank of Canada even after the coordinated central-bank cut on Oct. 8.

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