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It is widely expected by economists and financial markets that the central bank will slash its key interest rate target on Wednesday, but there is some debate as to how much it will cut. The central bank's policy interest rate is currently set at 4.25 per cent. Most observers are expecting the Bank of Canada to cut the rate by 50 basis points, but some have argued that it will cut by only 25 basis points for the fourth consecutive time.

Housing market

A rate cut by the Bank of Canada will translate into lower prime rates at the big commercial banks, lowering the cost of variable-rate mortgages and other variable-rate loans. In its deliberations ahead of its September rate decision, the central bank noted that a strong rebound in the housing market has not yet materialized and affordability remains constrained. However, members of the bank's governing council observed that the housing market could still pick up more quickly than expected.

Economy

In addition to its interest rate decision, the Bank of Canada will release its updated forecasts for the economy in its monetary policy report. The ºÃÉ«tv economy has continued to grow modestly, however real gross domestic product has shrunk on a per-capita basis for five consecutive quarters. The labour market has also eased with the unemployment rate in September at 6.5 per cent, up a full percentage point from a year earlier.

Inflation

The annual pace of inflation cooled to 1.6 per cent in September, falling below the Bank of Canada's target of two per cent and the smallest year-over-year increase in the consumer price index since February 2021. The central bank will update its expectations for where inflation is headed as part of its monetary policy report.

What's next

Bank of Canada governor Tiff Macklem said in September that it was reasonable to expect more interest rate cuts, given the progress made on inflation, but that the pace and timing of cuts will depend on the central bank's evaluation of the economic data. Financial markets will be looking for any clues in the governor's comments Wednesday about what is coming next from the central bank when it makes its next interest rate decision on Dec. 11.

This report by ºÃÉ«tvwas first published Oct. 22, 2024.