Merrill Lynch has gone boldly out today and predicted that the Bank of Canada could drop short term interest rates down by as much as 1.75% this year.  If that were to happen we would see the prime rate drop to 4.25%.

Now, will it happen?  This is largely based on what many economists are saying is an inevitable recession in the US to come in the first half of the year.  IF that comes or for that matter even if it is close this will no doubt bring slowdowns to Canada.

I can tell you this.  I believe there is a slow down if anything to be felt in Canada, likely not an official recession (2 quarters in a row of negative growth) but definitely slower.

There is another side to this.  IF, or maybe we should be saying when, the bank of Canada does drastically reduce short term rates, this will likely weaken the Canadian Dollar, which will be good news to many businesses especially in Ontario.