05:48 PM EST, 12/09/2024 (MT Newswires) -- The Bank of Canada is expected to cut its overnight rate by another half percentage point on Wednesday, said Scotiabank.

If the BoC cuts by only 25bps then it will be the right thing to do in the bank's opinion. This will be a statement-only affair at 9:45 a.m. ET as the next Monetary Policy Report including updated forecasts is due out on Jan. 29. Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers will host a press conference at 10:30 a.m. ET on Wednesday.

Scotiabank isn't entirely sold on the idea of cutting 50bps at this meeting. The case for doing so may concentrate on the following points:

-- 1. Markets are priced for almost all of a half-point cut. It would be the simple thing to do, versus having to explain why the BoC is less dovish than markets into the holiday season. Short-term rates would probably rise and the Canadian dollar (CAD or loonie) would likely appreciate which may be odd signals to send.

-- 2. A risk management approach may be employed by Governor Macklem. He might say that the costs of overdoing stimulus are outweighed by the costs of underdoing it and running the risk of inflation shooting well below 2% in 2025.

-- 3. Cutting 50bps would bring the overnight rate down to 3.25% and so still marginally in restrictive territory. That could retain bidirectional policy optionality for whatever 2025 brings.

-- 4. While the BoC publicly says it doesn't act upon possibilities like tariffs until they become fact and incorporated into its outlook, it may wish to take out some insurance against the disinflationary effects. If the BoC thinks Canada may retaliate, then it wouldn't want to do this because the higher tariffs would stoke more imported inflation at least for a time.

-- 5. Governor Macklem is fundamentally a dove. Others may disagree, but that's Scotiabank's strong belief. He waited far too long to begin hiking and after inflation was well on its way sharply higher. He acted very quickly in cutting upon the first signs of disinflation.