As the nail biter in Europe continues, two economists are predicting the Bank of Canada will move to cut rates in a big way next year.

Sheryl King, an Economist at Bank of America Merril Lynch, said in a note that the volatility hitting Europe and the risk of damage to the global economy means the Bank of Canada will move to cut its benchmark interest rate to ward off the risk of recession. Her prediction is the cut will be a whopping 0.75% decrease from the current rate of 1%.

 “With the Eurozone sovereign debt and banking crisis showing no sign of containment, we think the Bank of Canada will cut rates back to the effective lower bound of 25 basis points (0.25%) early next year,” she said.

King forecasts that the cut would come in two phases, with a 0.50% trim being announced during the bank’s January 17th meeting, with the second and final 0.25% cut coming during the March 8th meeting.

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