The Bank of Canada is poised to deliver its first rate cut since spring as it weighs a weakening job market and inflation that has slipped back toward target.
Economists increasingly expect a 25 basis point move on Sept. 17 to 2.50% from 2.75%, the level the Bank held at its last meeting on July 30.
A Reuters poll shows nearly four in five forecasters now calling for a cut, reflecting softer domestic data and a deteriorating outlook for growth.
The timing is unusually tight. August consumer price data arrive on Sept. 16, less than 24 hours before the decision. That release could nudge the tone of the statement, but the broader trend already argues for easier policy.
Headline inflation slowed to 1.7% year over year in July, while the Bank’s preferred core gauges have hovered in the mid-2s.
In its July Monetary Policy Report, the Bank noted underlying inflation had picked up to a range of about 2.5 to 3 percent even as headline neared 2 percent.
The split underscores a central challenge for Governor Tiff Macklem’s team: balancing near-target overall inflation with still-sticky underlying pressures.
CPI lands on the eve of the decision
The late-breaking inflation print will be the final data point before policymakers meet. Statistics Canada’s July report confirmed disinflation progress and flagged the next release for Sept. 16, keeping the focus on shelter and services costs that have proven slow to cool.
If August shows headline still near the 2 percent midpoint of the Bank’s 1 to 3 percent target band, it would reinforce the case for a measured step down in rates rather than a hold.
Labor market signals have done much of the heavy lifting in shifting expectations. Canada shed about 66,000 jobs in August, the second straight monthly decline, and the unemployment rate rose to 7.1%.
The losses were concentrated in part-time positions, but the breadth of weakness pointed to waning demand across service industries.
Those figures, combined with earlier signs of slack in the Bank’s July communication, have markets leaning toward a cut. In its July 30 statement, officials kept the policy rate at 2.75% and emphasized rising economic slack amid trade uncertainty.
They added that “there may be a need for a reduction in the policy interest rate” if a weakening economy continues to weigh on inflation and tariff-related cost pressures remain contained.
That language gave policymakers room to respond to subsequent data without surprising investors.
A parallel shift at the Federal Reserve complicates the backdrop but does not dictate the outcome. The Fed is also expected to ease this week, though for U.S.-specific reasons tied to softer employment and a different inflation mix.
For the Bank of Canada, the key is whether domestic conditions justify earlier relief. With growth slipping, unemployment rising and headline inflation near 2%, a cautious 25 basis point cut would seek to support demand without reigniting price pressures.
The communications challenge will be to frame the move as part of a gradual path, conditional on incoming data rather than a pre-committed easing cycle.
The near-term implications are straightforward for households and markets. A quarter-point cut would trim borrowing costs for variable-rate mortgages and lines of credit and help ease debt-service burdens that climbed during the tightening phase.
For fixed-rate borrowers, the impact will depend more on bond yields, which have already drifted lower on expectations of policy easing.
The Canadian dollar has softened in recent weeks as traders priced in a cut, a move that partially offsets the disinflation impulse but remains modest by historical standards.
None of this precludes a pause later this fall if core inflation proves stubborn. Officials have stressed they are proceeding carefully and will watch how tariffs, wages and shelter costs feed through to prices.
The sequence over the next 48 hours is set: inflation on Tuesday, decision on Wednesday morning in Ottawa.
Barring a major surprise in the CPI report, the Bank of Canada looks set to begin easing, and to say it stands ready to adjust the pace as the data dictate.
