Bank of Canada would be ‘justified’ cutting rates by half a point. Here’s why

The Bank of Canada is set for another interest rate decision on Wednesday. Here's how economists view the odds of another rate cut, and how much the policy rate could drop.

After proceeding at a tentative, 25-basis-point cut pace in the first three interest rate cuts of its cycle, many economists expect the Bank of Canada will take an oversized step lower in its upcoming decision on Wednesday.

The central bank’s policy rate stands at 4.25 per cent following the most recent quarter-point cut in early September.

But a lot’s changed in Canada’s economy since that time.

For one, inflation’s looking to be well-tamed, dropping from a bull’s eye on the Bank of Canada’s two per cent target to 1.6 per cent in the latest reading.

Tiff Macklem, governor of the central bank, has made clear in recent speeches that the Bank of Canada is equally concerned about inflation dropping too low below two per cent as it is about price pressures holding too high.

While Macklem had previously warned there could be “bumps” on the path back to the price stability target, inflation has come under control faster than the central bank first anticipated. Previous forecasts called for a return to two per cent inflation sometime in 2025.

Randall Bartlett, senior director of Canadian economics at Desjardins, tells Global News that he doesn’t see much further room for inflation to fall in the months ahead, with September’s sharp drop in gas prices unlikely to be repeated.

But Bartlett adds that the rest of the country’s economic output is also coming in weaker than the Bank of Canada expected.