The Zhitong Finance App learned that one of Canada's largest banks said that the Bank of Canada will speed up monetary easing to avoid a recession. According to the latest forecast released by the Canadian Imperial Bank of Commerce (CIBC) on Thursday, policymakers led by Governor Tiff Macklem (Tiff Macklem) will cut policy interest rates by 50 basis points at the December and January meetings, respectively. The National Bank of Canada and previously Citibank also agreed that interest rates will be cut sharply before the end of the year.

The bank expects the Bank of Canada to end the easing cycle with a 2.25% policy interest rate in June next year. According to a Bloomberg survey last month, the pace of interest rate cuts will be faster and deeper than most economists expected.

The Bank of Canada began lowering the benchmark overnight interest rate in June. Since then, at the July and September meetings, it has lowered the interest rate by 25 basis points, from 5% during the peak of the rate hike cycle to 4.25%.

CIBC chief economist Avery Shenfeld said in a telephone interview: “It is indeed time to declare victory in the fight against inflation and get the economy running again.” “There is no reason not to speed up the process of cutting interest rates drastically.”

As forecasts change, there is growing concern that Canada's labor market and economic growth are slowing faster than expected. According to employment data released last week, Canada added 22,100 jobs in August. Although there were no large-scale layoffs, the unemployment rate unexpectedly jumped to 6.6%.

Shenfeld said that the rise in the unemployment rate is mainly concentrated among young people and newcomers to Canada, but it is also spreading to middle-aged employees. He added that Canada's unemployment rate could rise to 6.8% or 6.9% in the next few months. This is not Shenfeld's basic scenario prediction, but he did not rule out the possibility that the central bank will cut interest rates drastically at the October 23 meeting.

Last week, Macklem reiterated that if inflation and the economy slow faster than expected, officials could cut interest rates by 50 basis points or more. However, he refuted this possibility, pointing out that in the case of stronger economic growth or continued inflation, suspending interest rate cuts would also be considered.

The National Bank of Canada (National Bank of Canada) also expects the central bank to cut interest rates by 50 basis points before the end of this year, saying that the policy interest rate is expected to reach 3.5% this year and 2.75% before the end of the easing cycle next year. This is the estimated median value of the neutral interest rate that neither stimulates nor limits economic growth for borrowing costs.

Former Bank of Canada Governor Stephen Poloz (Stephen Poloz) said on Thursday that if downside risks do accumulate further, there may be reasons to lower interest rates above this midpoint to ease economic conditions. Although he didn't say anything about a recession, he mentioned: “We should prepare for a recession rather than pretend it won't happen.”

CIBC and National Bank joined Citibank analyst Veronica Clark. Clark was one of the first analysts to predict this round of interest rate cuts of 50 basis points, and expects the Bank of Canada to cut interest rates at its next meeting in October.

Other major Canadian banks, such as Bank of Montreal, Toronto Dominion Bank, Royal Bank of Canada, and Bank of Nova Scotia, still expect Macklem to reduce borrowing costs by 25 basis points.

CIBC's Shenfeld said, “Interest rates are currently too high, which is not conducive to economic development. They have the ability to implement some interest rate cuts ahead of schedule.” He added that officials may want to stimulate the country's stagnant property market.

Canada's economy grew at an annualized rate of 2.1% in the second quarter, but it was mainly driven by government spending and corporate investment. Consumption showed a weak trend and was mainly supported by rapid population growth. Earlier economic output indicators showed that the country's economic growth will slow significantly in the second half of 2024.

Furthermore, one of the reasons why Shenfeld made this appeal is that Canada's unemployment rate is higher than the theoretical level of an economy in balance (what economists call NAIRU). Although NAIRU is a standard economic concept, research by Bank of Canada staff starting in 2022 opposes the use of this indicator, arguing that it is “difficult to accurately estimate.”