• Recent data suggest that the Canadian economy continues to slide into recession. Moreover, slumping commodity prices and growing economic slack will keep downward pressure on inflation.

• Globally, economic conditions continue to deteriorate, and the Fed set a precedent by lowering the fed funds rate to a new historical low. Against this backdrop, the Bank of Canada has a strong case to cut rates on January 20.

• We therefore look for the Bank of Canada to cut rates by 50 basis points, leaving the overnight rate at 1.0%.

• The communiqué is unlikely to depart significantly from the December statement, though the Bank might scale back their rhetoric on further rate cuts. That said, the tone will remain broadly dovish.

Monetary Policy Monitor