Another interest rate cut shouldn’t be ruled out

Financial markets are going cold on the prospect of another rate cut from the Bank of Canada. The Bank has already cut rates twice this year in response to the oil shock. Although the economy may no longer be in recession, it is still struggling to get back to potential growth. Therefore, the excess slack in the economy is likely to grow, putting more downward pressure on already subdued underlying inflation. Accordingly, we wouldn’t rule out a third rate cut as soon as early next year.