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Bank of Canada interest rate forecast report

Experts are unanimous: BoC will hold the policy rate at 5.00% at the October rate announcement.

Finder: Bank of Canada Interest Rate Forecast Report

The Bank of Canada (BoC) sets the official overnight rate — the benchmark target rate used by banks, credit unions and lenders to establish interest rates. This benchmark rate greatly impacts savings accounts, mortgages, interest rates charged on personal and car loans and other forms of debt, including credit cards and payday loans.

On October 25, 2023, the BoC held the target benchmark interest rate at:

5.00%

The next BoC interest rate decision is on:

Dec 6, 2023

Of the experts surveyed in the Finder: Bank of Canada Interest Rate Forecast for the October Policy Rate announcement:

100% predicted a rate hold

Latest BoC benchmark interest rate analysis from the experts


Finder regularly polls economists, analysts, professors and industry experts to forecast the Bank of Canada’s next interest rate decision. Here are the most recent overnight rate predictions from Finder’s economic expert panel:

Murshed Chowdhury, Associate Professor

September
HOLD
October
HOLD
“Despite elevated expectation of high inflation, the recent slowdown in GDP growth should allow the Bank of Canada to hold the [overnight] policy interest rate. Moreover, there is no sign that the US Feds plan to increase rates in November, which supports the BoC in holding the policy rate in Canada.”

Sherry Cooper, Chief Economist

September
HOLD
October
HOLD
“The economy is slowing and inflation has come down sufficiently to warrant a continued pause in rate hikes.”

Philip Cross, Senior Fellow

September
HOLD
October
HOLD
“Easing of inflation in September gives the Bank of Canada cover to wait for more data.”

Will Dunning, President

September
HOLD
October
HOLD
“The BoC continues to rely on a faulty model, and fails to consider that current inflation was mainly driven by supply side events — such as the ongoing effects of COVID, war and extreme weather events. [Up until now] BoC policies had very little effect on inflation — apart from helping to contribute to higher inflation.”

Carl Gomez, Chief Economist and Head of Market Analytics

September
HOLD
October
HOLD
“There are compelling signs that the lagged impact of previous tightening is softening economic growth and inflation by more than the Bank of Canada expected. Moreover, past rate hikes have also significantly eroded consumer and business sentiment.”

Nikola Gradojevic, Professor of Finance

September
+ 0.25%
October
HOLD
“Prices appear to be decelerating but with September’s inflation rate at 3.8%, it’s still far from the Bank of Canada’s target of 2% — making another hike a possibility. Meanwhile, Canadians are concerned about their future with many anticipating a recession next year. The higher interest rate environment has severely eroded Canadians’ purchasing power, and many are unable to pay their bills and debt obligations. Considering the current political climate and market sentiment, it would be prudent for the Bank of Canada to hold the policy rate in October.”

Derek Holt, Head of Capital Markets Economics

September
HOLD
October
HOLD
“Easing of inflation in September gives the Bank of Canada cover to wait for more data.”

Atif Kubursi, President

September
HOLD
October
HOLD
“The inflation rate has remained high but stabilized at 3.75%. There is no compelling reason to raise the rate. The Bank will probably take a wait and see attitude.”

Moshe Lander, Senior Lecturer in Economics

September
HOLD
October
HOLD
“Inflation continues to sit above the Bank of Canada’s target of 2%; however, with September inflation figures lower than August figures, and weak GDP figures, there is room for the BoC to postpone any interest rate increases — at least, until its December meeting. This will give it two more months worth of data and a better sense of how interest increases over the summer played out across the economy.”

Sebastien Lavoie, Chief Economist

September
HOLD
October
HOLD
“The Bank of Canada cannot increase its policy rate because of growing financial instability among borrowers. At the same time, the BoC cannot lower its policy rate because the fight against inflation is not over. Despite the bumpy road, the CPI inflation cooling process continues.”

Angelo Melino, Professor of Economics

September
HOLD
October
HOLD
“Although inflation remains resilient, the most recent CPI was a good step in the right direction. It seems prudent to take a wait and see attitude but remain vigilant.”

Lars Osberg, Professor of Economics

September
HOLD
October
HOLD
“Softening of the labour market and slowing inflation rates implies no [urgency or] need to raise interest rates [at this point].”

Douglas Porter, Chief Economist

September
HOLD
October
HOLD
“Economic growth is cooling markedly, the housing market has lost steam, the labour market is showing signs of loosening, and the BoC’s Business Outlook Survey points to na otable weakening in activity. Inflation is likely just mild enough to keep them on the sidelines [with no rate increase this month].”

Benjamin Reitzes, Canadian Rates & Macro Strategist

September
HOLD
October
HOLD
“The Canadian economy is clearly slowing, and the weaker September inflation figures removed most of the pressure [for the BoC] to hike [the policy rate in October].”

Taylor Schleich, Director, Economics and Strategy

September
HOLD
October
HOLD
“[The Canadian] economy is weakening and latest inflation report offered encouraging news.”

Avery Shenfeld, Managing Director and Chief Economist

September
HOLD
October
HOLD
“There’s now substantial evidence that current interest rates are high enough to have a material impact on Canadian economic growth which should, with a lag, reduce inflation in the coming year [and remove the need for a rate hike].”

According to survey results from the Finder: Bank of Canada Interest Rate Forecast report, in Q4 2023 and Q1 2024:

  • 60% anticipate a drop in nominal wages (pay that is not adjusted for inflation)
  • 30% anticipate a drop in real wages (pay that IS adjusted for inflation)
  • 74% anticipate a drop in the rate of inflation
  • 74% anticipate a drop in the price of commercial real estate
  • 53% anticipate an increase in household debt
  • 80% anticipate an increase in the cost of living
  • Almost half (40%) expect no change in employment figures

What is the Bank of Canada’s official policy interest rate?

The BoC does not set monetary policy; however, Canada’s central bank does work with the federal government to establish monetary policy and the primary tool used by the BoC is to make changes to the overnight target rate. By adjusting the target for the overnight rate, the BoC influences short-term interest rates — with an almost immediate impact on all variable-rate credit instruments, including lines of credit, personal loans, credit cards, mortgage rates and interest earned on savings accounts.

The BoC has the option to adjust the overnight rate at any one of its eight fixed-date interest rate announcements.

How the official BoC benchmark affects interest rates

While a change in the BoC’s target rate does not impact consumers directly, it does trigger a change in the interest rate that banks and other institutions use for loans, mortgages and other forms of credit. A change in rates can also impact savers, as interest rates on savings accounts and GICs also fluctuate with the overnight rate.

Still, for the average Canadian, the BoC target rate can be a useful tool. When the BoC moves to lower the target rate, it’s a signal that they want to help stimulate the economy. The theory is that by making it cheaper to borrow money, there’s a boost in borrowing and spending. An increase in the overnight rate makes borrowing money more expensive but helps savers earn more.

The Bank of Canada adjusts the target rate in response to various economic conditions, including data regarding: inflation, unemployment rates and global economic factors.

How does the BoC interest rate decision affect your finances?

The BoC can take three actions during an interest rate announcement: Raise, lower or hold the target rate.

The Bank of Canada adjusts the target rate in response to various economic conditions, including data regarding: inflation, unemployment rates and global economic factors.


Raise

Raise interest rates

When the BoC raises the overnight rate, almost all lenders will pass on this rate hike to borrowers. This increase will impact all variable-rate loans, including mortgages, lines of credit, payday or short-term loans and interest earned on savings accounts. For instance, if the BoC raises the overnight rate by 25 basis points, then most borrowers will see a 25 basis point increase in their variable-rate mortgage. However, homeowners with a fixed-rate mortgage will not be impacted by this rate change, as the rate is locked in for the duration of the mortgage contract (known as the term).

For savers, a rate increase can also prompt an increase in interest rates offered on savings accounts, high-interest savings accounts, as well as GICs.

Typically, banks and other institutions will pass on rate increases to credit faster than rate increases to savings products.

Down

Drop interest rates

When the BoC lowers the overnight rate, most lenders will pass on some or all of this rate cut to borrowers. Like a rate increase, a rate cut will impact variable-rate loans, including mortgages.

A rate cut will also prompt a reduction in the interest earned on savings accounts and GICs.

Down

Hold interest rates

When the BoC decides to hold the overnight rate it means no change to interest rates.

Typically, this is done when the BoC is waiting to see how economic factors are unfolding both within Canada and around the world. Another reason is that the BoC is on target — which means the current inflation rate is between 1% and 3%.

Example: How a rate hike or cut can change your variable-rate loan repayments

If the loan you negotiated with your lender charges a variable interest rate, then the payments you make can fluctuate when the Bank of Canada changes the overnight rate.

For instance, if you negotiated a five-year car loan of $25,000 in August 2023, with a variable rate of prime plus 1.50%, then your monthly repayments would be just over $511. (The bank prime rate is 7.2%, as of September 1, 2023, making the interest charged on this loan 8.7%).

⬆️ If the overnight rate rises by 25 basis points your car loan interest rate would increase to 8.95% and increase your monthly car loan repayment to just over $514 — an extra $2.80 per month or $33.60 per year.

⬇️ If the overnight rate decreases by 25 basis points your interest rate would fall to 8.45% and monthly repayments could fall to under $508 — a reduction of $2.80 per month or $33.60 per year.

You can find variable interest rates on mortgages, credit cards, personal loans, car loans, business loans, derivatives and corporate bonds.

Example: How a rate hike or cut can change your variable-rate mortgage payments

As a homeowner, you negotiated a 5.5% variable rate on a $450,000 mortgage for a 5-year term (based on an amortization of 25 years).

Based on your initial home loan contract your mortgage payment is just under $2,765 each month.

⬆️ If the overnight rate rises by 25 basis points your interest rate would increase to 5.75%. Your monthly mortgage payment would increase to just over $2,830 — an extra $65 per month or $780 a year.

⬇️ If the overnight rate decreases by 25 basis points your interest rate would fall to 5.25%. Your monthly mortgage payment would decrease to approximately $2,695 — a reduction of $70 per month, for a savings of approximately $840 a year.

How the BoC overnight rate has changed over time?

Between 1990 to 2023, the average interest rate in Canada was 5.78%. Since 1990, the highest overnight rate was in February 1991, when it hit 16.00%. In the same time frame, the lowest overnight rate was in April 2009, when it fell to 0.25%.

In July 2023, the Bank of Canada raised the target for its overnight rate by 25 basis points (bps), after the Bank had already raised the overnight rate by 25 bps in the previous meeting, held in June 2023. In the following two policy rate announcements, the BoC held its target rate — keeping the overnight rate at 5.00% during the September and October 2023 interest rate policy announcements.

When it comes to monetary policy and the use of the overnight rate, the Bank’s overall goal is to curb inflation. The aim is to return to a target that’s between 1% and 3%.



According to econometric models, Canada’s overnight interest rate is projected to hover around 3.50% in 2024 and 3.00% by 2025.


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