The Bank of Canada (BoC) will announce its next policy interest rate on Wednesday, October 23.

Earlier this week, Statistics Canada reported that the country's inflation rate had dropped to 1.6 per cent, much lower than the BoC's target of 2 per cent. This only strengthens existing speculation that a slew of rate cuts is coming soon.

A CIBC Economics Forecast report published in September says something more aggressive will occur within less than five months — two half-point cuts in December and January.

"That's in contrast to a prior forecast that had rates easing at 25 basis points (0.25 per cent) 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.

This means the rate could drop to 3 per cent in January. But since that report, things have shifted a bit. Penelope Graham, mortgage expert at Ratehub.ca, believes a half-point cut could come even sooner.

She shared her expectations about next week's BoC announcement.

"This week's latest Consumer Price Index (CPI) report has given the BoC all the rationale it needs for a jumbo rate cut next week; with inflation falling well below the Bank's own forecast and target range at 1.6 per cent, it's clear they'll need to take faster action on rates to bolster the softening economy," she said.

"Should a 50-basis-point (0.5 per cent) cut occur, Canada's overnight lending rate will fall to 3.75 per cent, a low not seen since December 2022."

U.S. inflation numbers also affect Canada, its sister market. Graham says bond yields have fluctuated above 3 per cent in recent weeks due to stronger-than-expected US inflation numbers and job reports both north and south of the border.

But she thinks Canada's latest CPI update has "firmly reinforced" market expectations of a larger rate cut.

"Five-year government of Canada yields have dipped back down to the 2.9 per cent range," Graham added. "This could put downward pressure on fixed mortgage rates, with the lowest five-year rate in Canada currently 3.99 per cent."

New mortgages and renewals

Graham told us that with rates changing so frequently, it's a volatile time to shop for a new mortgage or to be coming up for renewal.

"It's important for borrowers to explore all of the rate options available to them in the marketplace and assess what type of rate, term, and length would be most advantageous," she advised. "Working with a mortgage professional is key when establishing your personal rate strategy when rates are trending lower."

Per her analysis, even though there isn't a dramatic surge, solid evidence shows that homebuyers across Canada are responding to recent rate cuts.

"The latest national sales numbers indicate both a monthly and annual uptick. However, given expectations have now shifted to larger rate cuts in coming months, buyers may resume a wait-and-see approach to see how much further borrowing costs will fall."

Not everyone will be happy with the rate cuts, though.

Investors and savers will see a drop in their rates of return based on lenders' prime rates dropping, especially if the massive cuts materialize.

If the BoC announces a major cut

Let's say a homeowner put a 10 per cent downpayment on a $669,630 property — the average home price per September CREA numbers — with a five-year variable rate of 5.30 per cent amortized over 25 years (total mortgage amount of $621,350). They have a monthly mortgage payment of $3,721.

Using Ratehub.ca's mortgage payment calculator, if a 0.5 per cent rate cut is announced, the homeowner's variable mortgage rate will dip to 4.80 per cent, and their monthly payment will drop to $3,543.

This means the homeowner will pay $178 less monthly or $2,136 less per year on their mortgage payments.