The Bank of Canada is expected to announce a half-percentage-point interest rate cut this week, as forecasters predict the central bank will accelerate its pace of easing in response to a sharp drop in inflation. Following the recent report from Statistics Canada showing annual inflation at 1.6%—below the Bank’s 2% target—economists are anticipating a significant reduction in the policy rate, bringing it down to 3.75% from the current 4.25%.
The Bank has already lowered rates three times this year, with Governor Tiff Macklem indicating that more aggressive cuts could follow if inflation continues to drop sharply. Analysts also predict that another large rate cut could come in December, with the policy rate potentially reaching 3.25% by year-end and possibly further dropping to 2.75% by mid-2025.
The rate cuts are expected to stimulate the economy, particularly as real GDP per capita has shrunk for five consecutive quarters, and the labor market has softened, with unemployment rising to 6.5%. While these cuts may alleviate some pressure on the housing market, economists warn that affordability challenges persist due to high home prices and softer demand amidst rising unemployment, especially among younger prospective buyers.