How Many More Rate Hikes Are Expected From the Bank of Canada?

With the prime rate increasing by 2.25% since March, it’s only natural that many are worried about how much higher it will go. There is no shortage of doom and gloomers who will make it sound as though the sky is falling.

“Rates are going to 20%!”

The mere thought of this is enough to scare the living daylights out of just about anyone. Fortunately, the doom and gloomers are usually wrong.  

But there is some bad news. The Bank of Canada is not yet finished with their rate increases, and there are more expected on September 7^th. 

The good news is that the worst of the increases should now be behind us. Rates will eventually start trending back down, which may happen sooner than you think.

Bringing Inflation Under Control

The aggressive rate increasing madness from the Bank of Canada is intended to bring inflation under control. No one likes rising rates, but we also don’t like the prices of everything else rising either. The cost of almost everything is higher than it should be.

“$300 for groceries?  YIKES, there is barely anything in my cart!”

In order to keep inflation from getting completely out of control, the Bank of Canada is forced to make these moves.

Anyone currently in variable rate mortgage will almost certainly have one major question on their mind:  When will this come to an end?

Fortunately, there is light at the end of the tunnel.

The Final Round Of Rate Increases?

The big six banks are forecasting increases of another 0.75% to 1.00% from the Bank of Canada by the end of 2022. This should be the last of them as not one of the big six banks are forecasting even a single increase in 2023. In fact, RBC and National Bank are both anticipating a 0.25% rate cut in the fourth quarter next year.

For anyone currently in a variable rate mortgage, this should be music to their ears.

The rapid rate increases from the Bank of Canada will almost certainly force us into a recession along the way. But they are reluctant to use the R word as they don’t want it to become a self-fulfilling prophecy.

I think that ship may have already sailed.

Even if by some miracle we manage to avoid a recession, the economy will have taken a beating. They would then need to shift gears from controlling inflation to repairing the economy. In other words, they will need to start lowering their rate.

2022 / 2023 Rate Forecast

Below are the latest forecasts from the big six banks, broken down by quarter.

N/C = No change

As you can see from the chart, four out of the six banks are forecasting a 0.75% increase on September 7th. Two of them, CIBC and National Bank, both believe that this will be the last of the rate increases for the foreseeable future.

The remaining four banks, BMO, RBC, Scotia and TD, all believe that we’ll see another 0.25% increase in the fourth quarter of 2022, which would come on either October 26^th or December 7^th. 

All six big banks agree that the remaining increases in 2022 will be the last in this seemingly never-ending upward trend.

Rate Cuts In The Forecast!

Rate cuts are now forecasted by two of the six banks. The question is, will others adjust their forecasts to include cuts in 2023 as time progresses?  It’s very possible and time will tell.

While the big six banks don’t yet have any official projections for 2024, it’s expected that the rate cuts will continue. As I always say, time will tell and anything can happen.

How Does This Affect Fixed Mortgage Rates?

The Bank of Canada rate does not have a direct impact on fixed mortgage rates. While further increases are expected from the BOC, bond yields have been trending downward since mid-June. This has placed downward pressure on fixed mortgage rates resulting in most mortgage lenders dropping fixed rates in some categories, but not in others. I explain this in detail in my recent blog announcing that fixed mortgage rates are finally dropping. 

There is still room for fixed rates to fall further, however lenders are pricing in additional risk premiums which are keeping fixed rates artificially high. If the bond yields continue to trend downward, or even if they remain at current levels then we’ll likely see some more drops to fixed mortgage rates in all categories soon.

Conclusion

With all the frustration, stress and aggravation that the Bank of Canada rate increases have caused for many of us, it’s nice to finally see that the worst appears to be behind us. As I’ve been saying for awhile now, the faster and more aggressive the BOC gets with their increases, the sooner they will need to come through with a cut.

Cuts were not expected to start until 2024, but now we’re seeing two big banks anticipating a cut at the end of 2023. It’s very possible that we could see other banks change their forecasts to include cuts next year as well. Time will tell and anything can happen.