Economists are puzzling over whether the Bank of Canada will cut interest rates even further, introduce unusual easing methods, both, or neither, at its next policy meeting.

National Bank Financial says that it expects the central bank to leave its target rate unchanged on Tuesday, “but to get involved in quantitative easing as insurance against risks to the economy.”

Economists at TD Securities see the Bank of Canada cutting another 25 basis points to leave rates at just 0.25%. “Rates are nearing rock bottom, but given the severity of the economic contraction plus signals from the BoC, there is a case for a last rate cut,” it says, adding that the meeting is likely to mark the end of the easing cycle.

“In truth, we are not sure that another ease is worthwhile at this time, because even though the economy warrants it, there are some technical complications that transpire when the overnight rate gets too close to zero and these arguably negate the benefit from further easing,” TD says. Nevertheless, it expects the BoC to follow through on its signals.

“Aside from the decision itself, the contours of the statement will be key for providing some context. From this point forward, the focus will turn to the unorthodox policy measures,” it said. TD doesn’t expect it to jump right into quantitative easing, but to provide detail as to how it may do so in the future.

BMO Capital Markets also forecasts a further 25 bps cut, and it expects the quantitative easing framework to contain three key components: the creation of excess settlement balances using its existing facilities, Term Purchase and Resale Agreements, the Term Loan Facility and Term PRAs for Private Sector Instruments; direct support for the asset-backed commercial paper market; and purchases of bonds, starting with Canadas and agencies, and ultimately, corporates.

CIBC World Markets also stands with NBF, expecting that the BoC will leave rates alone. “The Bank could have chosen a 0.25% rate when it last met, but didn’t. It also spoke about quantitative or credit easing as the next option (rather than rate cuts),” it said. “Still, since we are in uncharted territory at already record low rates, there’s no historical guidance to make this call.”

IE