Julian Beltrame The Canadian Press OTTAWA
The Bank of Canada is being urged to jump into the fray of the financial market meltdown by aggressively cutting interest rates.
The tight credit environment, due to upheaval in the U.S. financial industry, has fundamentally altered the outlook for both the global and Canadian economies, analysts say.
They add that the key issue now is not whether Canada's central bank should lower rates, but if it should take the rare step of acting before its scheduled announcement date of Oct. 21.
It's been nearly half a year since the Bank of Canada adjusted its overnight lending rate, which has been set at three per cent since April 22, when it made an aggressive half-point cut.
"I think under normal circumstances, if we didn't have the political (election campaign) and we didn't have this bailout package going through the U.S. Congress, we might be in a situation where the central banks would already be cutting now,'' said Douglas Porter, deputy chief economist for BMO Capital Markets.
In the U.S., a $700-billion financial rescue plan was approved by the Senate last night and expected to go to the House for approval before week's end.
The vast majority of economists backed Bank of Canada governor Mark Carney last month when he held firm on interest rates, although Scotiabank's Derek Holt called for a half-point cut.
Regardless of the relative health of auto industry sales in Canada, the downturn south of the border is worrisome for Ontario-based car, truck and parts makers that export most of their volume across the border to the United States.
Economists are expecting to see real blood on the floor tomorrow when the next U.S. employment report is released, forecasting upward of 150,000 job losses for September.
A big danger, say economists, is that lenders may be so spooked that they totally freeze credit, depriving businesses of funds needed to carry on operations or expand, and also depriving consumers of loans for such things as mortgages or cars.
In a speech last week, Carney warned that Canada would be impacted by a U.S. slump, particularly the auto and forestry sectors that depend on exporting to American consumers
