By Mumal Rathore and Indradip Ghosh

BENGALURU (Reuters) – The Bank of Canada is expected to cut its overnight rate by 50 basis points on Oct. 23 as inflation pressures ease, according to two-thirds of economists polled by Reuters. However, there is no consensus on the future rate direction.

Headline inflation fell unexpectedly to 1.6% last month. Along with signs of a slowing economy, traders and economists believe the BoC will implement a 50 basis point cut next week, following previous reductions totaling 75 basis points since early June.

Governor Tiff Macklem indicated a desire to keep inflation between 1%–3% while managing economic growth, which is showing signs of weakening. Despite this, high shelter costs and an unexpected drop in the unemployment rate suggest caution.

In a Reuters poll conducted from Oct. 15-17, 19 of 29 economists forecast a rate cut to 3.75%, while one economist expected a cut based on an August survey. Derek Holt from Scotiabank noted that while data supports a 50 basis point cut, the BoC could still opt for a 25 basis point reduction, given the risk of reigniting inflation.

Most Canadian banks predict a half-point cut, except for TD, which anticipates a quarter-point reduction. If realized, the anticipated cut would align with a recent Federal Reserve rate cut. This prospect has contributed to a 2% decline in the Canadian dollar versus the U.S. dollar since the month's start.

Meanwhile, 10 out of 29 economists expect the policy rate to hit 3.50% by year-end, but opinions vary widely, with some predicting rates as low as 3.25%. Inflation is expected to rise slightly in the coming quarters but remain around 2% until 2026, according to the poll results.

The BoC may reduce rates by up to 100 basis points next year, though this would be less aggressive than this year. Last quarter's economic growth was anticipated at 1.2%, below the BoC’s 2.8% forecast in July, and 2025 growth is estimated at 1.8%. Updated economic forecasts from the central bank will be released next week.

(Other stories from the Reuters global economic poll)