Since mid-winter, it’s been predicted that the Bank of Canada would be cutting their overnight rate this year. The market has watched closely ever since, yet here we are in the fourth quarter and we have yet to see any movement. The next scheduled rate announcement will take place next week on October 30th. This would mark the fifth scheduled rate announcement since the prediction… so will this be lucky number five?
There were high hopes for a decrease with the last rate announcement of September 4th, yet the BOC held steady. As the market was expecting a cut, it reacted causing bond yields to start soaring. As fixed mortgage rates are based on bond yields, this led to multiple fixed mortgage rate increases across the board.
The yields started settling down a couple weeks later giving us some stability, however that was short lived. The yields started spiking back up again on October 7th, putting them at their highest levels since mid-July. This leads me to believe that the market isn’t getting its hopes up for a rate cut on October 30th. If the market isn’t optimistic about seeing a rate cut following next week’s announcement, then we shouldn’t either.
I’m less than optimistic that we’ll see a cut next week. Should the BOC maintain their overnight rate once again, then I would expect to see fixed mortgage rates continue to rise. I do however think this will be short lived. The BOC can only hold off so long before they need to cut their rate. They WILL eventually cut it. It’s just a matter of time before they do. There is a good chance that we’ll see the cut with the December 4th rate announcement. Time will tell of course, and anything can happen.
While fixed mortgage rates are not directly tied to the overnight rate, they can still be influenced by it. Once the market sees signs that the BOC is ready to join the 30 plus central banks around the globe who have already cut rates this year, we’ll start to see fixed rates settle back down, which could happen before the end of this year.
Paul Meredith is the author of the Amazon #1 best selling book, Beat the Bank – How to Win The Mortgage Game in Canada, and has ranked as one of the top 75 mortgage brokers in Canada since 2016. He was a finalist for Mortgage Broker of the Year in 2018, and can be seen as the exclusive mortgage broker on season two of TV’s Top Million Dollar Agent.