It goes without saying that we are all sick of these rate increases. Enough is enough! Just when it looks like we’ve seen the last of them, the Bank of Canada comes through with another hike.
Will this be the last one? Or can we expect them to increase further?
While it would be nice to say that we’ve now seen the last of the rate hikes in this cycle, there is too much uncertainty to know for sure. Even the Bank of Canada is not saying one way or the other.
There has never been a five year period in history where the Bank of Canada has increased their rate and not decreased within the same five year period. Rates will eventually drop, but there is a lot of uncertainty.
When will they drop?
What will be the size of the cuts?
How much will they drop before they bottom out again?
How long will it take?
These are all unknown variables. While no one can say for sure, the big six banks have updated their forecasts for 2024 which I have detailed below.
Rate Forecasts from the Big Six Banks
| BANK | 2024 | TOTAL | |||
| Q1 | Q2 | Q3 | Q4 | ||
| BMO | N/C | -0.25% | -0.25% | -0.25% | -0.75% |
| NATIONAL BANK | N/C | -0.50% | -0.25% | -0.25% | -1.00% |
| CIBC | N/C | -0.50% | -0.75% | -0.25% | -1.50% |
| RBC | N/C | N/C | -0.50% | -0.50% | -1.00% |
| SCOTIABANK | N/C | -0.25% | -0.50% | -0.50% | -1.25% |
| TD | N/C | -0.50% | -0.50% | -0.50% | -1.50% |
*N/C = no change
I’ve left out the remainder of 2023 as there is no movement expected in either direction.
You can compare this with what they were forecasting prior to last week’s Bank of Canada announcement in my blog from June 28th.
With the big banks are all forecasting cuts from 0.75% to 1.50% in 2024, the Bank of Canada is not quite as optimistic. They have made it clear that they are not prepared to cut rates until they have reached their inflation goal of 2.00%, which they now expecting to happen by mid-2025.
That would be two years before we see a rate cut.
Even though the Bank of Canada is controlling the rates, they are speculating the same as everyone else.
So, who is right?
We would need to have a crystal ball to know for sure. But the Bank of Canada is still just a single entity. While they are speculating for mid-2025, all six of the big banks disagree with them. That’s 6 to 1.
Once the BoC is convinced that inflation is under control, they would then turn their focus to stimulating the economy, which they would do by lowering their rate. It’s possible that this could happen before achieving their goal, but they first must be convinced that they will in fact achieve it.
Fixed Mortgage Rates
While the Bank of Canada has eight scheduled rate announcements per year, fixed mortgage rates can change in either direction at any time. Much like a stock, they can move based on one piece of news, regardless of its accuracy. If the bond market starts to think that inflation will come down sooner, then it will react accordingly which could then put downward pressure on fixed rates. The opposite can happen just as easily.
Fixed mortgage rates are heavily influenced by bond yields, which have been down from their 16 year high that was reached roughly two weeks ago. However, the drop is not enough for lenders to start cutting their fixed rates quite yet.
It appears that fixed rates may have at least stabilized. But this could change at any time. The market is extremely volatile which makes it close to impossible to predict fixed rate movement. While we’ll likely see changes in either direction before the end of the year, it’s not looking like we will see any substantial drops.
2024 may be a different story, however. We’ll see.
Conclusion
These are the forecasts as of today. However, forecasts are nothing more than speculation. An educated guess on where rates will be based on current information. As new information becomes available, the forecasts will get updated accordingly. They are always changing.
Time will tell and anything can happen.
