The Bank of Canada is due to make its first policy decision of the year on Wednesday, with all eyes focused on whether Governor Tiff Macklem will keep the benchmark interest rate at 0.25 per cent or reduce it even closer to zero as the country grapples with some of its severest lockdown measures yet.

With cases continuing to rise amid a second COVID-19 wave, here’s what some economists and analysts expect to see from the central bank:

“I expect to see no change in interest rates. I do not think the bank will cut rates less than 26 basis points as some think because borrowing is already strong for home purchases.”

- Sherry Cooper, chief economist at Dominion Lending Centres

“We do not expect a rate cut from the Bank of Canada at its next meeting as rate-sensitive sectors don’t need an additional boost. For instance, Governor Macklem noted before the holidays that we should watch how housing is faring ... Canadian home sales were up 7.2 per cent month-over-month in December to set a record for the month, which completed an annual gain of 12.6 per cent year-over-year. In other areas, retail sales have been above year-ago levels for several months.

“Although some immediate risks to the economy have gone up with intensified restrictions to stem the spread of COVID-19, medium-term risks relevant for setting monetary policy have abated. Vaccines are being delivered about a year ahead of the Bank of Canada’s earlier expectations; the U.S. stimulus and funding bill passed and a government shutdown was averted, which will provide some positive spillover effects into Canada; and financial conditions remain favourable to growth.”

- Brett House, vice-president and deputy chief economist at Scotiabank.

“What the bank does, who knows? It is practically out of bullets. Perhaps a small rate cut to take some of the edge off the loonie, but that won't do much. Expect forward guidance to be extremely dovish under the current circumstances.”

- David Rosenberg, chief economist and strategist at Rosenberg Research & Associates

“Central bankers have a tough decision. If they find that they can reduce interest rates further without harming the financial system’s functioning too much, they could use that firepower immediately. But the latest round of economic pain is not really something a central bank can solve. It’s been driven by infection rates, not interest rates. In fact, public health officials want people to stay at home, not [to incentivize them] to go out shopping at the moment. Officials tasked with steering the economy also might not want to add any more fuel on the fire of rising home prices. So it’s more likely that the Bank of Canada just hints that it can do more to ease monetary policy without actually pulling the trigger on a rate cut. That could serve as a warning for foreign exchange markets that continue to bid up the value of the Canadian dollar, something that is a headwind to the recovery in exports.

“Of course, central bankers might simply find that reducing the target policy rate any further would cause too much harm to the financial system’s functioning and all this discussion about a micro rate cut will be for naught.”

- Royce Mendes, senior economist at CIBC Capital Markets

“The bank’s forecasts were already very pessimistic, so we don’t expect the recent deterioration of the near-term outlook to prompt any further measures and think the bank is actually more likely to upgrade its forecasts next week than downgrade them.”

- Stephen Brown, senior Canada economist at Capital Economics

“We expect the bank will keep its policy stance unchanged and, while highlighting the downside risks to the near-term outlook, [for them to] incorporate a stronger rebound in activity in the second half of the year into its forecast given positive vaccine developments.”

- Dawn Desjardins, vice-president and deputy chief economist at RBC Economics.

“I don't think Tiff [Macklem] and the team want to go to negative rates. If anything, it is an easier thing to dial up or dial down their QE program … That's probably better than creeping towards negative interest rates in the front end, 10 basis points at a time like some people are talking about.

“The last [guidance update] was in October. I think the big development other than the data, which is quite noisy given COVID, is that now we have vaccines that work and that have been purchased, so that's good. The bad news is we now got the U.K. mutated strain and we've also got unknowns out of Japan, South Africa, and etcetera. If you think about it, these are things that are beyond the Bank of Canada's ability to forecast … I would expect revisions to the economic growth profile to be, if anything, down in the short term. But I don't know they'll actually meaningfully move their late-year and next-year projections, which will be based on a consumer-led recovery.”

- Ed Devlin, founder of Devlin Capital and former head of Canadian portfolio management at PIMCO.

“With the second wave of infection proving to be extreme, the Bank of Canada may expect a renewed economic contraction in the first quarter of 2021. The question is whether this will elicit an increase in monetary stimulus. The bank could increase its bond-buying program. The benchmark overnight rate is already at what the Bank of Canada considers to be the lower bound, which limits the scope for lower interest rates. But, it could do a largely symbolic minor cut of something like 10 basis points. So, it has options.

“My personal bet is that the bank will acknowledge the near-term downside risks, but note the [vaccine rollout] and the eventual reduction in health risks – and leave monetary policy unchanged.”

- Craig Alexander, chief economist and executive advisor at Deloitte Canada.