(April 17 – 17:00 ET) – With today’s rate cut from the Bank of Canada and the low inflation numbers posted in the United States, economists forecast continued cuts to interest rates coming in May.

Canada’s central bank cut interest rates 25 basis points today to 5%, bringing the total cut so far this year year to 100 bps. In the U.S., the Federal Reserve Board has already shaved 150 bps from its rates. “The Bank of Canada likely chose to slow the pace of easing (after the aggressive 50 bps move in early March) amid still relatively healthy domestic economic data and a weak Canadian dollar,” says BMO Nesbitt Burns.

CIBC World Markets notes that the modest quarter point cut is based on the bank’s expectation that the U.S. economy rebounds in the second half of 2001. But it notes that this recovery is hardly a sure thing. ” The latest U.S. economic data don’t provide any real certainty about that rebound, and even the Bank of Canada has enough doubts to keep it on the path towards lower rates.”

BMO predicts further cuts on both sides of the border in May. “We do not believe this is the last easing word from the Bank of Canada,” it says. “The next decision date for rates is on May 29, just two weeks after the next Fed meeting. The Fed is expected to chop rates by a further 50 bps at the FOMC meeting on May 15, and the bank will likely answer with another 25 bps move in late May, depending on the data flow and the Canadian dollar over the next six weeks.”

CIBC is sticking to its gloomier view, noting, “If, as we expect, American economic data continue to disappoint, look for a larger 50 basis point rate cut from the Bank of Canada at its next rate setting. By that time, the Fed will have pushed U.S. overnight rates another 50 basis points lower, to 4.5%. With Canadian core inflation running 0.7% lower than in the U.S., little immediate concern about an inflationary impact from the weakness in the dollar, and [Finance minister Paul] Martin reluctant to add further tax-cut stimulus, there’s no reason for the Bank to allow Canadian rates to drift above those stateside.”