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The Bank of Canada is expected to lower Interest rates to a neutral level faster than the U.S. Federal Reserve, according to analysts. Weak Canadian growth poses a risk of sustained Inflation below the Central bank‘s target of 2%. The BoC’s estimated neutral interest rate is between 2.25% to 3.25%, while the Fed’s estimate is around 2.9%.

A quicker move to the neutral rate could benefit heavily indebted Canadians but may weaken the Canadian dollar. The BoC may be more motivated to reach the neutral rate promptly due to slower economic growth in Canada, creating more room for stimulus.

While central banks globally are cutting Interest rates, the BoC and Fed differ in the pace and extent of their easing cycles. Investors anticipate the BoC reaching a benchmark rate of 2.75% within a year, unlike the Fed.

Canada’s economy has been growing below the potential rate of 2.4%, leading to lower Inflation levels. A further indication of the economy’s status may come from the upcoming Canadian employment report.

The BoC is set to make an interest rate decision on Oct. 23. Amid challenges in the domestic economy, some analysts predict a 50 basis point rate cut. This move could act as insurance against sustained below-target Inflation.

Investors are wary of below-target Inflation, with breakeven rates dropping below 2%. A scenario of missed Inflation targets could lead to significant currency depreciation for Canada.

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