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Last Updated: February 1, 2024

Interest rate forecast for 2024: 5.00%*

For more information about the 2024 Bank of Canada rate announcement schedule, read more here 👈

 

Key Takeaways (updated February 2024)

  • The prime rate in Canada as of January 24, 2024 is 7.20%. (last change: +0.00% on January 24th, 2023)
  • On Wednesday, January 24, 2024, The Bank of Canada announced that it will be holding its rate, keeping the policy rate at 5.00%.
  • Recent data indicates inflation is decelerating toward the Bank of Canada’s target, coupled with slow economic growth.
  • Today’s best mortgage rates are 4.84% for 5-year fixed and 6.00% for 5-year variable.
  • December consumer price index, the measure for year over year inflation, came in at +3.4%, following November’s +3.4%

2024 Predictions (updated February 2024)

  • For the month of February, Perch anticipates fixed rates will drop and variable rates will remain the same.
  • Rate cuts have been pushed out a quarter in 2024 and the long-term interest rate has risen by roughly 0.50% (meaning 2 less cuts than previously expected).
  • This seems to be mainly driven by inflation in December that was higher than expected.
  • Borrowers should still see over 1.75% in rate cuts by end of 2025, which will be highly anticipated by the bulk of mortgages maturing in 2025/2026.

Will Interest Rates in Canada Go Down in 2024?

On January 24th, the Bank of Canada held its interest rate at 5.00%. The next Bank of Canada announcement is scheduled for March 6, 2024.

Commentary from Perch’s CEO and Principal Mortgage Broker, Alex Leduc:

2024 is shaping up to be a great year for mortgage holders. Rates are expected to decrease by around 1% over 2024, with the decline potentially starting as early as Q2. Long-term interest rates have already dropped by about 1% relative to September’s expectations. That means cumulative rate cuts will be about 2.25% over the next 2 years and will normalize at that level. With a large amount of mortgages set to renew in 2025 and 2026, the timing couldn’t be better. 

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When is the next Bank of Canada rate increase and what can I expect?

The current market overnight interest rate forecast for the remainder of 2024 is:
Variable Rate Interest Forecast 2024 to 2028 (as of January 2024)
Date 5-year variable rates

12/31/23

6.00%

6/30/24

5.73%

12/31/24

5.01%

6/30/25

4.33%

12/31/25

3.63%

6/30/26

3.83%

12/31/26

3.43%

6/30/27

3.63%

12/31/27

3.38%

6/30/28

3.61%

12/31/28

3.45%

6/30/29

3.83%

12/31/29

3.76%

 

What is the interest rate forecast for 2024 in Canada? (updated February 2024)

Commentary from Ali Hussin, Head of Mortgage Advisory at Perch:

On January 24th, The Bank of Canada announced their decision to hold their Policy interest rate at 5.00%. 

The Central Bank believes there’s now sufficient evidence pointing to slowing demand and increased probability of a recession, lead by slower consumption growth and a decline in housing activity, while still maintaining their hawkish and precautionary stance. Markets and Senior Economists are largely convinced there are no more rate hikes in the pipeline for Canadians and expect the first rate drop to come as soon as Q2. The Central Bank projects the economy will continue to cool down, bringing inflation back to its two per cent target some time in early 2025.

Alex Leduc, Principal Mortgage Broker and CEO of Perch predicts that there will be no change in January. 

According to Alex Leduc, rate cuts have been pushed out a quarter in 2024 and the long-term interest rate has risen by roughly 0.50% (meaning 2 less cuts than previously expected). This seems to be mainly driven by inflation in December that was higher than expected. Borrowers should still see over 1.75% in rate cuts by end of 2025, which will be highly anticipated by the bulk of mortgages maturing in 2025/2026.

 

 

How does inflation affect future Bank of Canada interest rate changes?

According to the Statistics Canada report published on November 21, the CPI showed a 3.1% year-over-year increase in October, down from the 3.8% gain in September. This deceleration was mainly due to a decrease in gasoline prices (-7.8%). Excluding gasoline, the CPI rose 3.6% in October. While prices for goods decelerated, prices for services increased at a faster pace (+4.6%), driven by higher costs for travel tours, rent, property taxes, and other special charges.

The main contributors to the year-over-year CPI increase were mortgage interest cost, food purchased from stores, and rent. On a monthly basis, the CPI increased by 0.1% in October, following a 0.1% decline in September. This monthly increase was driven by higher prices for travel tours and property taxes, which are priced annually in October. When seasonally adjusted, the CPI fell by 0.1% on a monthly basis.

Perch believes this is a huge deceleration and will keep further bank hikes at bay.

In November, Canada’s yearly inflation rate remained constant at 3.1 percent, in line with the preceding month’s figure, as per Statistics Canada’s recent data release. Contrary to economists’ predictions anticipating a dip below the three percent mark, the rate held firm, keeping the economy in proximity to the Bank of Canada’s targeted two percent inflation rate. Notably, mortgage interest expenses and elevated rental costs persist as major factors influencing the inflation rate, experiencing increases of 29.8 percent and 7.4 percent, respectively, compared to the previous year.

What is CPI and how does it affect the Canada interest rate forecast?

CPI stands for consumer price index and it is the measure of average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is mainly used to measure inflation. A rising Consumer Price Index (CPI) would prompt the central bank to raise interest rates. The CPI basket includes 8 main categories of goods and services: Food, Shelter, Household operations, Clothing, Transportation, Health, Recreation, and Alcoholic beverages. CPI data is reported for various geographic areas, including Canada, provinces, and select cities, such as Whitehorse, Yellowknife, and Iqaluit.

Canadian CPI Release Schedule 2023-2024

  • February 20, 2024
  • March 19, 2024 

What affects the Bank of Canada’s interest rate forecast? 

The Bank of Canada’s interest rate forecast is influenced by a variety of financial, economic and geopolitical factors. Some of these include economic growth, inflation, labour market conditions, global economic conditions, consumer spending and more. Here are some recent numbers that will affect the Bank of Canada’s interest rate forecast decision:
  • December consumer price index, the measure for year over year inflation, came in at +3.4%, following November’s +3.4%, a result of the base-year effect since gasoline prices fell more on a monthly basis in December 2022 than they did in December 2023. Excluding gasoline, the headline CPI slowed year over year, from 3.6% in November to 3.5% in December.
  • Canada’s continued increase in newcomers has been the biggest prop up to our job market, the unemployment rate was unchanged in December as it remained at 5.8%.
  • Canada added just 100 jobs in the final month of 2023, missing expectations of 15,000 jobs, following an increase of 25,000 jobs in November.
  • Canada’s 5-year bond yields have continued to move downward since they reached 16-year highs during the month of October. Canada’s mortgage rates tend to track five-year bond yields at a premium and with a lag. Yields dropped due to a growing consensus that interest rates remaining elevated long than anticipated and a hard Canadian recession fear all but diminished as the Canadian economy is now expected to be in a mild recession after a negative Q3 and flat Q4 results.
Alex Leduc

Alex Leduc

Alex Leduc is Founder and CEO at Perch. Prior to starting Perch, he worked in the real estate sector for 8 years in corporate finance, strategy and analytics roles. He is currently a Technical Advisory Committee Member of the Financial Services Regulatory Authority of Ontario (FSRA) and Co-Chair of the Canadian Lenders Association Mortgage Roundtable. Alex is a graduate of Ivey Business School from Western University and a CFA Charterholder. LinkedIn

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What is the Canadian prime rate?

The prime rate is what major banks and financial institutions in Canada use to set interest rates for loans and lines of credit which also include variable rate mortgages.

 

Is prime rate the same as mortgage rate?

The prime rate is not the same as your mortgage rate. A prime rate is the base cost of borrowing from which lenders start to determine interest rates on mortgages, personal loans, credit loans or other financial products. In general, the prime rate mostly affects variable rate mortgages. Your mortgage rate is the interest rate you are expected to pay on any borrowed money.

 

What is the mortgage interest rate forecast for 2024 in Canada?

On January 24th, the Bank of Canada announced a rate hold, keeping the interest rate at 5.00%.

Our current best 5-year fixed rate is 4.84% and 5-year variable rate is 6.00%.

Markets and Senior Economists are largely convinced there are no more rate hikes in the pipeline for Canadians and expect the first rate drop to come as soon as Q2. The Central Bank projects the economy will continue to cool down, bringing inflation back to its two per cent target some time in early 2025. 

2024 is shaping up to be a great year for mortgage holders. Rates are expected to decrease by around 1% over 2024, with the decline potentially starting as early as Q2. Long-term interest rates have already dropped by about 1% relative to September’s expectations. That means cumulative rate cuts will be about 2.25% over the next 2 years and will normalize at that level. With a large amount of mortgages set to renew in 2025 and 2026, the timing couldn’t be better. 

 

What are the interest rate predictions from the banks?

 

CIBC

CIBC economists say that “not much has changed over the past few months. Growth in the Canadian remains weak and inflation, as judged by the Bank’s preferred core measures, has showed some but not enough progress. We expect that to be the main message of the press conference will be to draw a line in the sand that we need to see further progress on the inflation before discussing rate cuts. There will likely be another token reference to the possibility of further monetary restraint, but that should be balanced by an acknowledgement of flexibility to get back to target and the outsized role of shelter costs. What we would like to see is the Bank putting greater weight on a broader set of inflation measures (cough …*CPIX*…cough) as a guidepost to monetary policy”.

RBC

RBC economists say that “The Bank of Canada is widely expected to hold the overnight rate steady at 5% in the first policy decision of 2024 – extending a pause that started following the last hike in July. The statement and press conference that follows will be watched closely for hints about how much longer the central bank expects to hold interest rates at these levels, although we expect the BoC to push back against the idea that a shift to interest rate cuts is coming soon. There is some potential that the central bank could hint at an earlier-than-expected end to quantitative tightening policy but would likely take pains to communicate the primary objective of that change would be to ensure adequate liquidity in funding markets rather than flagging a shift to easier monetary policy and imminent rate cuts”.

Scotiabank

Scotiabank economist, Derek Holt, predicted that there would be no policy change on January 24, 2024. He also predicts “no balance sheet changes are likely but there may be hints at how such changes are afoot. Expect less confidence in near-term progress on the inflation front and more pushback against nearer term easing”.

Holt continues to believe that “inflation risk is higher in Canada than the US and the BoC should take its time and be patient even as the Fed eventually begins cutting. Here’s the partial list: ripping wages with collective bargaining efforts cementing years of wage gains 2–3 times the BoC’s inflation rate and more inflation expectations that remain at or above the upper end of the BoC’s 1–3% target range; tumbling labour productivity; rampantly excessive immigration on a thoroughly mismanaged file that begs a pre–election cabinet shuffle; tight housing and auto inventories; ongoing fiscal stimulus that will very likely increase further at the federal and provincial levels of government; renewed global supply chain pressures as indicated by soaring shipping costs. Output gaps are one thing in terms of drivers of inflation, but the Governor applauds the move toward gradual balance and excess supply too loudly as the foundation for the BoC’s inflation forecasts”.

TD Canada

TD Bank senior economist James Orlando’s long-term forecast is as follows:

  • Following an economic slowdown in 2024 and subsequent rebound in 2025 and 2026, long-term Canadian GDP growth is expected to stabilize around 1.8% annually. This will be driven by solid population and labour force growth, while productivity growth lags behind. 
  • Consumer spending will undergo a period of below trend growth through 2026, as Canadian households save more in the face of high mortgage debt. 
  • Business investment is expected to grow above trend over the forecast horizon. The need to build more homes will boost residential investment, and the opportunity to fast track the clean energy transition will cause a lift to investment in structures, machinery, and equipment. 
  • After a period of high inflation, we expect headline and core consumer price inflation to decelerate back to the 2% target over the medium term.
  • With inflationary pressures easing over the medium term, the Bank of Canada will be able to cut its policy rate back to the neutral rate of 2.25% by 2025. We expect the loonie to return to the 80 U.S. cent level once Canadian economic growth is able to catch-up to that of the U

BMO

According to BMO economists state that there is “no change expected in the overnight rate for the fourth consecutive meeting. There have also been some rumblings about potential changes to quantitative tightening (QT), but we aren’t expecting any shifts on that front just yet either (though there’s an outside chance of a tweak). While the market continues to get excited by the potential for rate cuts, it’s far too early for the BoC to take a more dovish tone. We’re anticipating that the statement will be broadly similar to what was said in December”. They have also stated that “there’s no denying there’s been progress on bringing inflation lower; however, it’s also clear that there’s still plenty of work to do in order to get back to 2%. Rate cuts are very likely in 2024, but the Bank of Canada is going to remain as patient as possible for inflation and inflation expectations to retreat further. Following three years of well-above-target inflation, the last thing policymakers want to do is ease policy too early and allow inflation to re-accelerate”.