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Category: What's New in 2008

Scotia Economics Updates Rate Forecast

October 8, 2008 2:24pm

Update from our economists regarding today's co-ordinated 50bps rate cut:

Throughout this year, Scotia Economics has consistently been in the minority of global forecast shops that have been predicting that interest rates would move lower, not stay flat and certainly not move higher. However, while we are resisting the zero-rate camp, we nonetheless foresee significant further interest rate reductions by all major central banks than we had previously forecast.

Within this environment, impaired global inter-bank funding channels mean that rates have to be hit much harder than would otherwise be the case in order to have any hope of passing through to the end borrower as a material easing of monetary conditions. That, in turn, also requires much further global use of liquidity management and other measures in order to break through log-jams in credit markets.

We now see the Bank of Canada cutting by a further 50bps on October 21st followed by an additional 25bps in Q1. However a further inter-meeting globally coordinated cut is highly possible. The overnight rate is projected to remain flat at 1.75% through to the end of 2009. The direction of risks is more skewed towards further easing than forecast, rather than less.

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