Around a year ago, it was widely predicted that we would see 2-3 increases to prime rate in 2019.  Economists did a complete 180 on these predictions in January of this year, predicting that we would see the Bank of Canada cut their overnight rate by summer.

Fast forward now to today.  The overnight rate (which is what determines prime rate) has remained unchanged. It is still widely anticipated that the Bank of Canada will cut its rate by the end of this year, possibly as soon as September 4th, which is their next scheduled rate announcement.


Will we see a cut on September 4th?

The Bank of Canada does not want to cut rates, and they’ll do everything they can to hold steady. They’ve been heavily resistant to dropping their rate, as evident in the last few scheduled announcements, but how long can they resist?

The  US / China trade war, which will not be ending anytime soon, is negatively impacting global growth, which continues to slow. There have been at least 30 central banks around the world who have cut rates this year.  The Bank of Canada, however, is not one of them.

The Bank of Canada can only hold out for so long before they cave.  I think there is a greater chance we will see them keep things status quo on September 4th, however, I doubt they’ll be able to hold the fort through to the end of the year.  We’ll likely see at least one more cut in 2020 as well.  All this is speculation of course, and time will tell.


What does this mean for mortgage rates?

The Bank of Canada overnight rate is what the banks use to set prime rate.  The rate that variable-rate mortgages and Home Equity Lines of Credit (HELOCs) are based on.  Fixed rates, however, are not necessarily impacted by the BOC rate, however, that doesn’t mean they are never affected by it. A surprise move by the Bank of Canada can send the bond yields either skyrocketing or plummeting. (Fixed rates are determined by bond yields).

Fixed mortgage rates have fallen a full 1% since the start of 2019.  Will they continue to drop further? There is a good chance that they may.  The question is, how much further will they drop?



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.