OTTAWA — Economists widely expect the Bank of Canada to deliver another interest rate cut this Wednesday, even as recent reports show a mixed picture of the economy — with stronger-than-expected job gains and inflation that remains above target.
The central bank is forecast to trim its benchmark rate by another quarter point to 2.25 per cent, following a similar cut in late September that ended a string of three consecutive rate holds. According to LSEG Data & Analytics, financial markets have priced in more than an 80 per cent chance of a cut.
BMO chief economist Doug Porter said the latest economic data presents “a tougher backdrop” for easing but still supports a gradual move toward lower borrowing costs. “The September inflation report did make it a little tougher to cut rates,” he said, noting that headline inflation accelerated to 2.4 per cent, while core inflation measures remain above three per cent.
At the same time, the labour market added an unexpected 60,000 jobs in September, a headline that might normally deter the Bank from cutting. But Porter argues that job growth has been largely stagnant since January, with the unemployment rate holding at 7.1 per cent and business hiring subdued due to U.S. trade uncertainty.
“The broader economy still needs relief,” Porter said. “We think they should proceed carefully here, but ultimately, they should proceed with lower rates.”
Economists at RBC, including Nathan Janzen and Claire Fan, echoed that view, writing in a client note that slowing labour demand and declining inflation expectations give policymakers more flexibility. “This essentially means more room and flexibility for the central bank to have looser monetary policy,” they said.
However, both banks cautioned that further rate cuts may depend on how sharply the economy weakens in the months ahead. RBC expects any additional stimulus to come primarily from the federal government’s fall budget, due November 4, rather than monetary policy alone.
BMO forecasts the current easing cycle will bring the policy rate down to two per cent — one of the lowest terminal rates projected by major Canadian forecasters.
Beyond inflation and jobs, Porter warned that recent announcements by automakers Stellantis and General Motors—either pausing or relocating production to the U.S.—underscore “an exceptionally challenging time” for the Canadian economy. He added that government spending and monetary policy must “row in the same direction” to counter these pressures.
“You don’t want to see fiscal and monetary policy working against each other,” Porter said. “A bit of support from the fiscal oar and a little from lower interest rates — that’s the balance we need.”
The Bank of Canada is also expected to return to publishing a single economic forecast in its monetary policy report on Wednesday, after two quarters of releasing alternative scenarios tied to shifting U.S. tariff policies.