Key points from the October 2023 Bank of Canada announcement:
- The BOC announced a second consecutive hold to the policy rate.
- The overnight lending rate will remain at 5.00%.
- The retail prime rate (what you and I pay) remains at 7.20%
- Economic conditions in Canada continue to deteriorate, pointing to a strong argument that rate hikes are done for this cycle, and we can start to anticipate cuts in 2024.
No change to the BOC prime rate announced today.
For the second consecutive meeting the Bank of Canada kept its policy rate unchanged at 5.00%.
Click here to read the full Bank of Canada press release.
The decision to hold the rate comes after mounting evidence that the Canadian economy is stalling and tipping towards recession. The latest readings on inflation, GDP growth and consumer & business spending all point to a slowing Canadian economy.
While it’s still too early to claim victory, the BOC is sufficiently satisfied that the 10 rate hikes (yes 10) announced over the past 18 months are having their desired effect.
RATE FORECAST
With each passing week, we are getting more and more confidence that the Bank of Canada will not increase rates further.
When can we expect the first cuts?
The first implied cut is priced in for Q2 2024 with a 54% likelihood at the time of writing.
What about fixed rates?
In isolation, based on the negative economic outlook in Canada, fixed rates should be dropping now.
However Canadian rates are being held high at the moment by the U.S bond market which is pushing 23 year highs.
The US and Canada are starting to diverge in terms of their economic macros and fundamentals. There is a strong magnetism that can’t be overstated when it comes to the US’s influence on Canadian bonds which in turn affects fixed mortgage interest rates.
We are expecting to see weakness start to weigh on US consumers in the coming weeks which would trigger a reversal to US yields and bring fixed rates down.
The key observation here is that fixed rates will start to drop before the BOC announces their first cut.
At the moment that hasn’t happened yet… but maybe I can start to report that shift for the last BOC meeting of 2023 in December.
Need more help or information?
If you would like to get in touch about today’s announcement or your mortgage, you can contact me here or book a call in my calendar below.
