December 2022 Bank of Canada Interest Rate Update

December 7, 2022

Key points from the December 2022 Bank of Canada announcement:

  • The Bank of Canada announced a 0.50% increase to the prime rate in its final policy meeting for 2023.
  • In 2022 the BoC has executed the following increases: +0.25%(March), +0.50% (April), +0.50% (June), +1.00% (July), +0.75% (September), +0.50 (October) & +0.50 (December)
  • The overnight lending rate is now 4.25%, while the retail prime rate will increase to 6.45%

The Bank of Canada announces a +0.50% increase to the policy rate.

The Bank of Canada rounded out the year with one final increase to the overnight lending rate.

2022 will be remembered as a historic year for interest rates. The overnight lending rate increased by 4.00%, bringing the retail prime rate you and I pay on our debt to 6.45%.

The BoC’s announcement came with a press release that highlighted the challenges faced. Inflation remains stubborn globally, but there are signs of slowing growth.

You can read the full press release here.

My take on what’s to come…

Bond markets in Canada are sending clear signals that we are headed into a recession in 2023. The so-called inversion of the yield curve is a strong predictor for recession. At the moment, Canada leads the G7 with the deepest inversion on the curve. The last time it dipped by this magnitude was in the early 90s, predicting the recession of that era.

As far as this relates to fixed and variable rate mortgages, it means that relief is on the way.

Fixed rates are coming down.

Lenders take the elevator to increase rates and the stairs to bring them back down. I’m happy to report that in the last week and a half, all lenders have dropped 5 yr fixed rates in varying amounts. Currently straddling 5% ranging from 4.89% to 5.39% depending on the transaction type.

The BoC Prime rate will stay static.

I don’t expect to see the BoC drop the prime rate anytime soon in 2023. While the economy will slide into recession, the BoC will be resolute on achieving its 2.00% inflation target. We will likely see more meaningful drops to the prime rate in late 2023 and into 2024.

Is now the time to convert variable into fixed?

2023 might be a strange year for rates where fixed-rate mortgages will actually be lower than variable-rate mortgages. As the year rolls on, there will likely be an opportunity to lock into a fixed rate to lower your monthly payments. However, the conundrum will be that if locking in too early, you will forego the opportunity to take advantage of lower rates in 2024.

If you’d like to discuss today’s decision and how it relates to your mortgage, you can schedule a convenient call time directly into my calendar below.