Dealers predicted the Bank of Canada will lower interest rates next week

By Frank Pingue

TORONTO (Reuters) - Nearly all of Canada's primary securities dealers predicted on Friday that the Bank of Canada will lower interest rates next week as the slowdown in the global economy shows little sign of easing.

Six of Canada's 12 dealers, surveyed by Reuters, forecast Canada's central bank would cut its key overnight rate by 50 basis points at the next rate-setting date on October 21. Three called for a 25-point cut, and three expect no move.

The bank's key overnight rate is now 2.50 percent.

Most dealers agree that the bank will lower its key rate by at least 50 basis points by the end of the year, but some differed on whether it would come in one 50-point cut on Tuesday or in a 25-point cut on Tuesday and then another in December.

"It's clear that some rate-cutting does need to occur and I don't see what the motivation would be to drag that out over the span of months," said Eric Lascelles, chief economics and rates strategist at TD Securities. "I think they are much better suited getting there quite quickly."

Just last week, the Bank of Canada unexpectedly cut its key interest rate by 50 basis points in a coordinated move with other central banks to help calm ailing financial markets.

But with concerns that the global economy is teetering on the verge of a recession that would cut demand for major Canadian exports such as oil, rate cuts in Canada remain firmly on the table.

"The U.S. outlook is really darkening day by day ... they are in a recession and now the question is how deep of a recession is the United States in," said Carlos Leitao, chief economist at Laurentian Bank of Canada in Montreal.

"So if the Bank of Canada is going to act, it's now. There is no point in waiting until December. Why wait? Do it now."

In the past two weeks a pair of Canadian banks have forecast the Canadian economy will slide into a recession during the first quarter of 2009 as the global financial crisis saps growth.

Seven dealers said the Bank of Canada would move to cut rates on December 9, the bank's subsequent scheduled policy announcement date. Four expected a 25-point cut, three called for a 50-point cut, and five dealers expected no move.

For the January 20 policy announcement date, 10 of the dealers expect the Bank of Canada to leave the key rate steady, while two expect a 25-point cut.