Back in the fall of 2018, there were strong predictions that the Bank of Canada would be increasing their overnight rate* at least two times in 2019. There was a solid chance of the initial increase coming with the scheduled rate announcement on January 9th, however, this did not occur. A lot can change in a few months.

The Bank of Canada is expecting a slowdown in global GDP from 3.7% in 2018 to 3.4% in 2019 and 2020. Global oil prices dropped 25% in the last quarter of 2018, which was a key contributor to the decline in Canada’s GDP over the same period. They maintain that Canada’s economy continues to perform well, with employment growth being strong and with unemployment at a 40 year low. They have however changed their forecast for domestic GDP growth from 2.1% down to 1.7%. They expect this to turn around later in the year, with the forecast back up to 2.1% for 2020.

There is still lots of uncertainty however. The trade dispute between the US and China, as well as Brexit are concerns. Oil, housing, and global trade policies will also have an impact on interest rates throughout the year.

So what does all this mean for mortgage rates?

The Bank of Canada is still going to be gunning to increase prime rate, however, it’s going to be difficult for them to move as fast as they were originally hoping. It’s still possible that we could see an increase before the summer, however, I wouldn’t be surprised if this was pushed out until later in the year…. if it happens at all.

Bond yields, which are typically the primary driver of fixed mortgage rates, have been declining since late November. Mortgage rates should have started dropping late last year, however, lenders were keeping them status quo. Downward pressure remains on fixed mortgage rates. We have already seen a few decreases, particularly on CMHC insured mortgages which are now as low as 3.34% for a 5 year fixed.  It’s possible that we could still see further discounting to fixed mortgage rates, however, lenders (led by the banks) still remain reluctant to drop rates down to where they should be.

There were some cuts to the discounts to some lender’s variable rate mortgages this week. The lowest 5 year variable rate with a 35% down payment / equity increased from prime -1.24% (2.71%) to prime -1.10% (2.85%) for example.

So the seemingly imminent threat of rapidly increasing mortgage rates in 2019 has subsided compared to what was being predicted in October. For all we know, we could see prime rate drop before the end of the year. This is something that would not surprise me. It wouldn’t be the first time that economists were wrong. Time will tell.

*The overnight rate is what prime rate is based on


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.