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Canada Interest Rate Forecast 2024-2028

Last Updated: June 12, 2024

CURRENT INTEREST RATE FORECAST FOR 2024: 4.75% (last updated June 5, 2024)

Current Forecasts:

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

 

Key Takeaways (updated June 2024)

  • The prime rate in Canada as of June 5, 2024 is 7.20%. (last change: -0.25% on June 5, 2024)
  • On Wednesday, June 5, 2024, The Bank of Canada announced that it will be cutting its rate, bringing the policy rate to 4.75%.
  • Recent data indicates inflation is decelerating toward the Bank of Canada’s target, coupled with slow economic growth.
  • Today’s best mortgage rates are 4.74% for 5-year fixed and 6.15% for 5-year variable.
  • April’s inflation figures represented the lowest inflation rate in three years, since March 2021’s 2.2 percent. Economists and market analysts now believe that there could potentially be a rate cut at the next announcement in June. 

2024 Predictions (updated June 2024)

  • The markets are pricing in a 50% chance that the Bank of Canada cuts rates by 0.25% on June 5th, but there is a 100% expectation that rates will be cut in July if they aren’t cut in June, so the peak of interest rates should soon be behind Canadians. The pace of cuts has moderated a bit and we now expect roughly 1% and 1.50% of cumulative interest rate cuts by the end of 2025 and 2026 respectively. This will be welcome relief as the majority of Canadian mortgages are expected to mature by the end of 2026.
     

Will Interest Rates in Canada Go Down in 2024?

On June 5th, the Bank of Canada cut its interest rate to 4.75%. The next Bank of Canada announcement is scheduled for July 24, 2024.

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

The markets are pricing in a 50% chance that the Bank of Canada cuts rates by 0.25% on June 5th, but there is a 100% expectation that rates will be cut in July if they aren’t cut in June, so the peak of interest rates should soon be behind Canadians. The pace of cuts has moderated a bit and we now expect roughly 1% and 1.50% of cumulative interest rate cuts by the end of 2025 and 2026 respectively. This will be welcome relief as the majority of Canadian mortgages are expected to mature by the end of 2026.
 
 
 
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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 June 2024)
Date 5-year variable rates

5/31/24

6.15%

6/30/24

6.15%

12/31/24

5.83%

6/30/25

5.49%

12/31/25

5.14%

6/30/26

4.98%

12/31/26

4.72%

6/30/27

4.70%

12/31/27

4.52%

6/30/28

4.67%

12/31/28

4.56%

6/30/29

4.67%

12/31/29

4.71%

 

How will this impact your monthly mortgage payments?

Our mortgage affordability calculator was designed to help you determine whether you can afford to renew your existing mortgage at current mortgage rates and explore alternative financing options like interest only loans or a readvanceable HELOC. If you have any questions or want to explore your options, please sign up for Perch today to speak with one of our expert mortgage advisors.

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

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

The markets are pricing in a 50% chance that the Bank of Canada cuts rates by 0.25% on June 5th, but there is a 100% expectation that rates will be cut in July if they aren’t cut in June, so the peak of interest rates should soon be behind Canadians. The pace of cuts has moderated a bit and we now expect roughly 1% and 1.50% of cumulative interest rate cuts by the end of 2025 and 2026 respectively. This will be welcome relief as the majority of Canadian mortgages are expected to mature by the end of 2026.
 
 

 

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

Canada’s consumer price index decreased to 2.7 percent in April from 2.9 percent in March, primarily due to slower food price growth, Statistics Canada reported on Tuesday.

Although food prices continued to rise in April, the increase was at a slower rate of 1.4 percent compared to 1.9 percent in March, according to the data agency. Additionally, price growth for food purchased from restaurants also moderated.

Conversely, consumers faced a 6.1 percent increase in gas prices in April, up from a 4.5 percent rise in March. Statistics Canada attributed this to the switch to summer petrol blends, supply concerns, and higher federal carbon levies.

April’s figures represented the lowest inflation rate in three years, since March 2021’s 2.2 percent. Economists and market analysts now believe that there could potentially be a rate cut at the next announcement in June. 

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.

 

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:

  • The Consumer Price Index (CPI) rose 2.7% on a year-over-year basis in April, down from a 2.9% gain in March. Broad-based deceleration in the headline CPI was led by food prices, services and durable goods. The deceleration in the CPI was moderated by gasoline prices, which rose at a faster pace in April (+6.1%) than in March (+4.5%). Excluding gasoline, the all-items CPI slowed to a 2.5% year-over-year increase, down from a 2.8% gain in March. On a monthly basis, the CPI rose 0.5% in April, mainly driven by prices for gasoline. On a seasonally adjusted monthly basis, the CPI rose 0.2% in April.

  • Canada added 41,000 jobs in February, following 37,000 jobs in the first month of 2024, Job gains were spread across several industries in the services-producing sector, with the strongest employment growth in accommodation and food services. Population growth continues to outpace the labour market and prop up an otherwise cooling job market. Furthermore, we saw the unemployment rate increase by 0.1% in February to 5.8% after a brief drop in January to 5.7%, once again fueled by stronger population growth.
  • 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.

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 June 5th, the Bank of Canada announced a rate cut, bringing the interest rate to 4.75%.

Our current best 5-year fixed rate is 4.74% and 5-year variable rate is 6.15%.

 

 

What are the interest rate predictions from the banks?

 

CIBC

CIBC ‘s Avery Shenfeld predicted “should the Bank cut rates, the press conference will see it reiterate the warning that rate cuts are likely to be delivered at a moderate pace, and are still dependant on future inflation news. If it stands pat, it will surely increase its signaling that cuts are coming soon. So while rates out to two years should rally more on a ease, we don’t see markets radically altering their views on where interest rates will sit three to five years out”.

RBC

RBC economists say that “the rate cut today from the Bank of Canada marks the first step of an easing cycle where interest rates are lowered back towards “normal” levels, and spells good news for Canadian households that have been contending with elevated borrowing costs. To be sure, interest rates themselves are still high – and will still be at levels the BoC views as ‘restrictive’ by the end of this year even if our expected 100 bps worth of cuts materialize. Still, the move itself signifies confidence among policymakers that the most likely path for future inflation in Canada is down. The BoC will get two additional monthly inflation and labour market reports, as well as the second quarter business and consumer surveys before the next scheduled policy decision in July. Those should all offer more clues on a few key pressures points that the BoC highlighted including housing, wage growth and inflation itself. Our own base case assumes another 25 basis point cut in July”.

Scotiabank

Scotiabank economist, Derek Holt, says that the Governor’s urgency has led us to revise our forecast, anticipating another rate cut in July and a total of 100 basis points of easing this year, up from the previous 75 basis points prediction. We expect these cuts to continue steadily until the October meeting, pausing in December due to the US election. Our forecast for a 3.25% policy rate has been advanced to Q3 2025. We believe fiscal and monetary policies will boost our 2.1% growth projection for next year, with inflation reaching 2% by the end of 2025. Fiscal policy, especially in an election year, is likely to become more stimulative, supporting economic growth. However, Canada faces higher inflation risks than the US due to factors like wage growth outpacing productivity, persistent housing shortages, and high immigration rates. The BoC’s focus on potential growth and per capita GDP may also influence future decisions. Overall, the Governor appears to be moving quickly toward less restrictive monetary policy.

TD Canada

TD Bank senior economist James Orlando says “that the path forward for the BoC is going to be slow. It has acknowledged that the economy doesn’t need such high interest rates any longer. At the same time, it will proceed cautiously. It must ensure that inflationary pressures don’t rebound like they have in the U.S. in recent months. It also doesn’t want to reignite the housing market, where prospective buyers have been waiting for greater interest rate certainty. We expect the BoC is on a cut-pause-cut path, with the next cut likely occurring in September. This outlook will cause the BoC to diverge significantly from the Fed, which is likely to put greater pressure on the loonie over the coming months”.

BMO

BMO economist, Douglas Porter, has stated that “The first cut may not necessarily be the deepest, but it is the most significant, as it marks the official turning point after more than two years of restrictive policy. This is indeed likely to be the first of a series of cuts, although that series is not going to be a straight line down by any means. The Bank’s tone is a bit more dovish than expected, but each and every cut this year will require evidence that inflation is calming”

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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