The Bank of Canada is widely expected to leave its key lending rate unchanged when it makes its latest interest announcement Tuesday morning.

The central bank's overnight lending rate has remained at 4.25 per cent since May, following nine consecutive hikes of a quarter of a percentage point.

Many economist expect the Bank of Canada to start dropping its key lending rate in 2007.
Many economist expect the Bank of Canada to start dropping its key lending rate in 2007.

Most economists say the key lending rate will not budge because the central bank expects growth in Canada to moderate in the coming year while inflation appears to be well-contained.

In its last policy announcement in September, the Bank of Canada warned about the possible fallout from a slowdown in the U.S. economy. It also noted that economic activity in the second quarter of 2006 was below its expectations.

Market watchers will be scanning the text of the release that accompanies the rate announcement for clues to how the central bank views the economy. They're looking for hints that the Bank of Canada may be leaning towards an easing of monetary policy (in other words, lower interest rates). 

If no hints can be gleaned from that, then observers have several more chances on Thursday. The central bank releases its semi-annual monetary policy report that day. Governor David Dodge also talks to reporters that morning and appears before the House of Commons finance committee in the afternoon.

But many economists say they don't expect the picture to have changed once all that has taken place.

The Bank is "likely to continue focussing on the upside risk from home prices and fret about the current pace of core CPI, but will also likely note some of the arising downside risk to domestic growth and the pullback in energy prices," said BMO Capital Markets economist Doug Porter.

TD Bank economists are also forecasting no rate change Tuesday, but a half percentage point drop in the first half of 2007. CIBC World Markets chief economist Jeff Rubin is forecasting a cut of a full percentage point by the end of 2007. 

Tuesday's rate announcement takes place at 9 a.m. ET.