As the Canadian economy begins to show signs of weakening, economists are widely expecting new Bank of Canada governor Mark Carney to cut interest rates tomorrow.

Paul Ferley, assistant chief economist at the Royal Bank of Canada is looking for a 50 basis point cut to 3%. “We expect the statement will reinforce policymakers’ concerns about Canada’s economic prospects given the sustained volatility in financial markets, rising cost of capital and growing downside risks to the U.S. economy,” he said in a morning commentary today.

Economists at TD Securities said there is a “solid case for the Bank of Canada to continue cutting rates.” Jacqui Douglas, economist strategist at TD is not expecting inflation, core inflation in particular to “reignite any time soon.”

“We’re now in a situation where some serious economic slack is beginning to build. Inflation should stay in check, and we’re not expecting core CPI to return to the Bank’s 2005 2% target until the tail end of 2009,” she wrote in a commentary last week. “The case for rate cuts is clear, with the only question being how big.”

Douglas said TD is also expecting Carney to bring the rate down to 3% tomorrow, and is also looking for some “substantial downward revisions to the Bank’s GDP forecast” when it releases its quarterly Monetary Policy Report on Thursday.

“Ultimately we expect to see the overnight rate hit a floor of 2.0% by mid-year, giving the Canadian economy some much-needed stimulus to get through the upcoming slowdown in growth, and to eventually get inflation back to the Bank’s 2.0% target,” she said.

Aron Gampel, vice-president and deputy chief economist at the Bank of Nova Scotia is also expecting at 50 bps cut tomorrow from Carney. “From a monetary perspective, the subdued performance of consumer price inflation—notwithstanding food and energy increases and rising wages, particularly in the resource-rich regions that are experiencing chronic labour shortages—have provided the central bank with the flexibility to lower interest rates during these challenging times in financial markets,” he wrote in weekly trends report.

Along the same lines, a C.D. Howe Institute brief released today suggests that food and energy prices need watching but that the balance of risks in Canada is tipped toward an inflation target undershoot. The report’s author, professor David Laidler, said monetary easing is the right policy for the moment.

The report, “Food and Energy Prices: Why the Bank of Canada Should Remain Focused on the CPI,” said that the central bank should pay close attention to overall inflation as measured by the Consumer Price Index (CPI). To avoid inflationary risks, Laidler said the bank should downplay core inflation, which excludes volatile items such as food and energy.

Douglas Porter, deputy chief economist at the Bank of Montreal said the bank “grudgingly” believes the odds are in favour an aggressive rate cut. “Another argument on the side of a deep cut is the fact that credit market disruptions have prevented some of the previous Bank rate cuts from fully filtering through to the economy,” he wrote in a commentary.

That said, BMO economists did question if aggressive rate cuts are the best way to go for Carney and the central bank at this point. He noted that domestic demand remains is healthy, auto sales and housing starts are up and employment is strong. “Even with much talk about a credit crunch, the reality is that overall household credit growth has simply not skipped a beat in Canada since the global crisis erupted last summer,” he wrote.

The Bank of Canada will make its rate announcement Tuesday morning at 9 a.m. The Monetary Policy Report is scheduled for release Thursday, April 24 at 10:30 a.m.