CIBC predicts the Bank of Canada (BoC) will push for more aggressive rate cuts, and Canadians could see a significant drop as soon as December.

In June, the Bank dropped the interest rate from a longstanding 5 per cent to 4.75 per cent. That move was the first in more than four years, following six rate holds. Another quarter-point cut followed in July, bringing the rate to 4.5 per cent. Then, in September, the BoC cut the key interest rate to 4.25 per cent.

CIBC economists and other industry experts expect a quarter-point cut in October.

In its Economics Forecast report published on September 12, CIBC predicts that something more aggressive will occur within less than five months — two half-point cuts in December and January.

This means we could potentially see the rate drop to 3 per cent in January.

"That's in contrast to a prior forecast that had rates easing at 25 basis points at a time, and we no longer expect any pauses on the path to less restrictive rates," CIBC economist Avery Shenfeld said in the report.

CIBC noted that as inflation is cooling in the US and Canada, central bankers in both countries are "set to declare victory" as the "broader economy will reap rewards."

Canada is nearing its inflation target rate, with its Consumer Price Index (CPI) at 2.5 per cent. Lowering mortgage rates would close the remaining CPI gap, bringing it to 2 per cent.

"When inflation is somewhat troubling, and interest rates are already moderate, you need a lot of economic pain to induce a major drop in interest rates," Shenfeld added. "But with inflation soon to be vanquished and real interest rates still at restrictive levels, there's no logical reason for central bankers to move too cautiously to provide relief."

Shenfeld said both countries are also experiencing softening job markets, and "cutting rates materially is really a no-brainer."

CIBC

The report further noted that a more accelerated cut would help Canada stay out of a recession as the country's labour market has shown weakness.

The cuts would impact housing and other "interest-sensitive sectors," but the full effect likely wouldn't be seen until 2026. Canada still faces the challenges of upcoming mortgage renewals in the next two years and "the drag from greater household sector indebtedness."

Moreover, political uncertainties like US trade policy still pose risks to Canada's economy, as well as wars in Europe and the Middle East.

"With inflation cooling globally, central banks can now be important players in countering downside risks to growth," concluded Shenfeld.