09:10 AM EDT, 10/23/2024 (MT Newswires) -- The Bank of Canada (BoC) will announce its regular interest rate decision at 9:45 a.m. ET on Wednesday and, after the developments of the past few weeks, there is much to suggest that it will accelerate the pace of rate cuts, said Commerzbank.

Just a few weeks ago, BoC Governor Tiff Macklem hinted that larger moves might be appropriate at upcoming meetings. Initially, markets were doubtful, but with inflation recently falling by a surprisingly large margin and now threatening to undershoot the target, sentiment has changed, wrote the bank in a note to clients.

The surprise has become part of a remarkable period of disinflation in which price pressures have nearly collapsed, stated Commerzbank.

As a result, Canadian one-year inflation expectations are now only 1.2%, roughly in line with the average for the 2010s, when the policy rate was also significantly lower on average. Or to put it more "succinctly:" Despite the three rate cuts of 25 basis points so far, monetary policy remains too restrictive because inflation has collapsed at the same time.

Wednesday's larger cut should as such no longer come as a surprise, pointed out the bank. What will be more interesting is how further such large rate cuts will be announced.

Given the inflation trend, Commerzbank thinks it likely that the BoC will cut rates by another 50 basis points in December unless inflation miraculously picks up. If the BoC signals this more or less clearly on Wednesday, the Canadian dollar (CAD or loonie) is likely to come under pressure again.