The Bank of Canada went for the more aggressive 50 basis point cut today, and economists expect more to come.

TD Economics says that observers will probably read a lot into the fact that this was new governor Mark Carney’s first rate decision, but it believes the move had nothing to do with the changing of the guard at the bank.

“Indeed, while economists and financial markets had debated in recent weeks about whether the monetary authority would deliver a traditional quarter point or greater half point reduction, yesterday’s extremely weak Canadian economic figures for the fourth quarter and December, combined with the overwhelming evidence of deteriorating economic conditions in the United States, virtually made the decision to ease a half point a slam dunk,” TD says.

RBC points out that the Bank’s policy statement notes that “the balance of risks around its January projection for inflation has clearly shifted to the downside.” It also reports that the Bank highlighted that “there are clear signs that the U.S. economy is likely to experience a deeper and more prolonged slowdown than had been projected in January” and said that the “important downside risks to Canada’s economic outlook that were identified in the MPRU are materializing and, in some respects, intensifying.”

“All told, the downside risks to Canada’s outlook are growing,” RBC concludes. “The combination of slowing growth (mainly on the back of a heavy drag from the trade sector) and low inflation set up for the Bank to continue to cut the overnight rate and we are forecasting another 50 basis points of easing over the next couple of meetings. The risks favour even more aggressive rate cuts if the U.S. economic outlook continues to deteriorate.”

TD Economics expects a further half point cut at the next rate announcement on April 22. “That action would take the overnight rate down to 3%, which would put monetary policy in a highly stimulative stance that should help the economy weather the headwinds coming from the United States,” it says.

National Bank Financial agrees with TD, saying, “For the time being, we are still calling for the overnight rate to bottom at 3% but we will be getting there sooner as Mr. Carney adopts a fast-track approach and leave the door open to another 50 basis points rate cut in April.”

BMO Capital Markets also expects the Bank to take overnight rates down to 3% by the summer — or earlier — to help offset sagging exports. “Combined with tax cuts already in place, solid momentum in personal income growth, and upbeat business spending plans for 2008, the rate relief will help partially cushion the Canadian economy in the face of a mild U.S. recession,” it says. “However, the Bank is not a miracle worker, and even it can not fully shield the economy in the event of a deeper-than-expected U.S. downturn.”