Will BoC cut interest rates for the second successive time?

The Bank of Canada is set to cut interest rates for a second straight meeting to avoid a recession and prevent an inflation flare-up. Governor Tiff Macklem stated that he sees a soft landing, a slowdown that cools price pressures without triggering mass job losses. He became the first Group of Seven central banker to lower borrowing costs last month, and economists and markets expect another cut to the key policy rate on Wednesday, to 4.5% from 4.75%.

Macklem’s mandate will be to ensure Canadians the bank is on the right track despite obstacles ahead. There is inflation risk, as core measures are sticky, and economic danger, as half of mortgage-holders still need to renew their contracts at higher rates. Government efforts to curb temporary migration will remove an artificial sweetener that has masked souring consumer sentiment.

The stakes are high for Macklem, who faced criticism for promising Canadians in 2020 that rates would stay low for “a long time” and then for delaying the pivot to rate hikes as inflation surged. However, he appeared confident leading his central bank peers last month and will likely reiterate on Wednesday that further cuts are possible as long as price pressures keep waning.

The bank will also release a fresh batch of economic forecasts, which are likely to match the muted optimism of analysts in a Bloomberg survey. They see headline inflation decelerating from its current 2.7% annual pace to hit the central bank’s 2% target by the end of 2025, when the economy will also be expanding at a 2% yearly clip.

Macklem and his officials are unlikely to provide explicit forward guidance on Wednesday, instead repeating that they will take decisions one meeting at a time as they weigh incoming data. They have said they expect the path to lower borrowing costs to be “gradual,” and economists predict the key rate will reach 3% by the end of next year.