We expect the Bank of Canada to stick with its tightening bias in next week’s policy statement and through the early stages of next year, before removing it completely by early March. By then we anticipate that the increased economic slack in the economy and diminished inflationary pressures would justify a neutral stance on interest rates, especially if housing continues to soften as we expect. Furthermore, we believe Canada's slowing housing market is the start of a potentially severe and protracted correction, which we anticipate will eventually lead to speculation that rates might be cut.
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