Paul Beaudry calls for a 50-basis point rate cut to boost confidence ahead of the central bank's meeting
Paul Beaudry, former Deputy Governor of the Bank of Canada, said officials should cut borrowing costs by half a percentage point at their upcoming meeting, according to BNN Bloomberg.
He believes there are “good reasons” to move interest rates “back to as close to neutral as quickly as possible,” emphasizing the potential to boost household and business confidence.
Beaudry indicated that policymakers are now more certain that wage growth, inflation expectations, and corporate pricing are moving in the right direction, supporting a faster reduction in borrowing costs. He expressed optimism that a sustainable return to the 2 percent inflation target is within reach.
“The preconditions were there to kind of start moving down; you want to move that down quickly,” Beaudry stated during an interview on the Canadian Imperial Bank of Commerce podcast, Curve Your Enthusiasm, which aired on Monday.
He added that he would “really bet on 50 basis points” in reference to the Bank of Canada’s upcoming meeting on October 23. Offering some monetary stimulus, given the current slowdown in Canada’s economy, could help send the right message to consumers and businesses.
“When you want to turn things around, you want to get the confidence going,” Beaudry emphasized.
His comments come as interest rate expectations in North America shift following US employment data that surprised on the upside last Friday.
This data prompted traders in overnight swaps to predict the Bank of Canada’s benchmark overnight rate could approach 3 percent by July next year, while also assigning a 25 percent probability to a 50-basis-point cut at the upcoming meeting.
In the podcast, Beaudry explained that the Bank of Canada generally aims to provide clarity on its direction through economic updates and prefers not to surprise the market, except when absolutely necessary.
“It really doesn’t like to surprise the market, but it’s ready to surprise the market if it’s needed given the data,” he said.
The current benchmark rate of 4.25 percent continues to weigh on economic growth. Beaudry reiterated that the neutral rate—the level at which interest rates neither stimulate nor restrict the economy—is approximately 2.75 percent, although there is some uncertainty about the exact figure.
He stressed that borrowing costs should “fall pretty quickly” to reach that neutral zone.
“Things will go fast until we get into that zone. Then there’ll be a little bit of searching,” he added.
Statistics Canada is expected to release September employment data on Friday, with the previous report showing an unemployment rate of 6.6 percent in August.
Beaudry believes that unless there is a significant increase in inflationary pressures, the Bank of Canada will likely view the elevated unemployment rate as evidence of economic slack.
“Even if things came out a bit stronger in this next report, I don’t think that would change the Bank of Canada’s view extremely,” Beaudry noted. He concluded, “There should be a really aggressive cut.”
