The Bank of Canada is widely expected to cut its policy interest rate by 25 basis points on Wednesday and there are few indications that it will stop there, economists say.

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A quarter-point cut this week would be the third in a row and bring the overnight rate down to 4.25 per cent. Wednesday’s decision comes as the central bank has signalled a more dovish tone in recent months, with economists predicting cuts at every meeting for the remainder of the year and into 2025.

“I don’t think they’ll signal that’s the end of the road; I think they’ll maintain openness to continuing to do more,” said Beata Caranci, chief economist at Toronto-Dominion Bank. “But in typical bank speak, I would expect they’ll continue to indicate they are data dependent and watching how the data evolves.”

The consumer price index hit 2.5 per cent in July, its slowest pace in nearly three years. The Bank of Canada has forecast inflation will return to its two per cent target by the end of next year.

“The last CPI print, when we looked purely at the number of components, nearly 50 per cent were growing at less than one per cent, so that’s pretty significant,” said Jimmy Jean, chief economist at The Desjardins Group. “The story about inflation and why it’s still at two and half per cent, is largely about housing and it’s largely about rents in particular.”

Jean says no amount of monetary policy tightening can have an impact on housing, given it’s a supply and demand issue.

Following the central bank’s policy rate announcement in July, Bank of Canada Governor Tiff Macklem said the central bank’s “balance of risks is shifting,” meaning as inflation moves back to target, the bank is paying more attention to the downside risks to inflation and the economy.

“They are in the world of two-sided risks again and six months ago that was not the case,” Caranci said. “Six months ago, the concern was more one-sided, that inflation was going to remain sticky and high.”

Economic growth in Canada came in stronger than expected in the second quarter, growing at an annualized rate of 2.1 per cent, above the Bank of Canada’s forecast of 1.5 per cent. However, momentum going into the third quarter looks to have slowed, according to preliminary estimates by Statistics Canada, with GDP growth flat in June and July.

The labour market has also become a concern: the unemployment rate jumped to 6.4 per cent in June and held there in July. Statistics Canada reported job vacancies were down 25.6 per cent in June compared to the year prior. Payroll employment also declined by 47,300 in June, compared to the month of May.

If employment and the economy continues to deteriorate, Jean argues a steeper rate cut this fall could be a possibility.

“Disappointing signals on the labour market front have kept coming and have been pretty persistent,” said Jean. “A super-sized cut in October is not at all far-fetched in my opinion in Canada.”

National Bank of Canada economists Taylor Schleich and Warren Lovely are also not ruling out the potential for a 50-basis-point cut this fall.

“To be sure, our base case outlook doesn’t incorporate 50-basis-point moves this year and the Bank of Canada probably prefers to ease in more ‘normal’ increments, but the skew of labour market risks implies a larger cut in the fall is more likely than a pause,” they wrote in a note to clients.

As the bank’s easing cycle continues, forecasters expect the policy rate to fall to between 2.25 per cent and 3.25 per cent by the end of next year.

• Email: jgowling@postmedia.com

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