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Bank of Canada interest rate forecast report
83.3% of experts predict correctly: The BoC held the policy rate at 5.00% at April 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 April 10, 2024, the BoC held the target benchmark interest rate at:
5.00%
The next BoC interest rate decision is on:
June 5, 2024
Of the experts surveyed in the Finder: Bank of Canada Interest Rate Forecast for the April Policy Rate announcement:
83.33% predicted a rate hold while 16.67% predicted a drop of 0.25%
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:
"The Bank still seems anxious about inflation. Despite having the Total CPI within the range, the other inflation indicators have yet to reach the target. The spike in interest rates is significantly affecting consumers' demand and curtailing investment. The little change in near-term inflation expectations still plays a dominant role in inflation anxiety."
"Following the seasonal fluctuations in December and January, the inflation is trending downward which is promising for potential rate cuts taking place this year. Canadians are still economically struggling with business insolvencies reaching the highest level in nearly 20 years. The Bank of Canada is now actively considering the timing of the first policy rate cut, but a cut in April may come too early and is unlikely."
"Inflation is now within the Bank of Canada's target range, but it needs to remain there for an extended period before interest rates can come down. The Bank of Canada would not want to backtrack because it moved prematurely."
"The last CPI print for the month of February makes clearer the downtrend path of inflation, something the BoC has been looking for. Accordingly, a discussion surrounding the end of the policy rate at the current level makes sense, preparing the grounds for a summer cut."
"The economy is still running at a positive clip despite the high interest rates buoyed by high oil and gold prices and a strong US economic performance. If the Bank of Canada were to reduce interest rates by a larger percentage it may depreciate the CAD to a level that would increase the cost of living at home and worsen inflation. The Bank has engendered the expectation that it would reduce the bank rate and failure to do so sooner or later will have undesirable effects on the economy."
"Inflation has come in lower than expected for the last month, but the economy has been surprisingly strong in early 2024. So it is sort of a toss up. I think however, in the absence of economic weakness the Bank will want to show more patience before cutting rates. The first rate cut will put a lot of pressure on the housing market, given pent up demand, and there will be a lot of pressure for further rate cuts. The Bank will want to make a series of quick cuts once its starts."
"Although the Canadian economy is weak and inflation is receding, positive upside surprises in some recent data points, and still elevated inflation expectations, seems to be enough to keep the Bank of Canada on the sidelines for now."
"Minutes from the Bank of Canada's March 6th decision to keep the policy rate at 5% reveal a divided Governing Council, still "on the fence" about when it should begin to cut rates. Economic growth has come in stronger than the BoC's recent forecast, while CPI inflation and the labour market have been softer. We believe the mixed data will keep the BoC on hold in April."
"Inflation dynamic is still not where the Bank of Canada would like it to be. In other words, its measures of core inflation are not yet sustainably below 3%."
What is the Bank of Canada’s official policy interest rate?
The BoC does not set monetary policy; however, Canada’s central bank works 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 can adjust the overnight rate at any 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 useful. When the BoC moves to lower the target rate, it signals that it wants 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 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, and GICs.
Typically, banks and other institutions will pass on rate increases to credit faster than rate increases to savings products.
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 reduce the interest earned on savings accounts and GICs.
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 your payments 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 monthly mortgage payment is just under $2,765.
⬆️ 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 and 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.
Regarding 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 will hover around 3.50% in 2024 and 3.00% by 2025.
More questions about the Bank of Canada's interest rate
Interest rates fluctuate all the time. The interest rate dictates how much it costs to borrow money. Like most services, this cost of borrowing will change based on the market. However, market forces also dictate whether or not interest rates will rise or fall. For instance, if analysts are uncertain about near or long-term economic forces, this can prompt lenders to be more careful about lending, which can increase interest rates. That said, various market forces can influence interest rates, such as economic growth, international trade and inflationary pressures.
Analysts and experts at the Bank of Canada (BoC) will monitor, assess and run predictive models to determine whether or not to influence Canada's monetary policy using the Bank's target rate (aka: overnight rate). The BoC uses the target rate to influence what lenders charge on variable-rate loans, such as variable-rate mortgages, lines of credit, and interest earned on savings accounts. When the BoC wants to stimulate the economy, they will lower the overnight rate, which prompts a drop in interest rates. If the BoC wants to help cool the economy, there is a hike in the target rate, prompting an increase in variable interest rates.
The Bank of Canada is the country's central bank. The BoC's main role is to monitor and promote the economic and financial welfare of the country, as defined by the Bank of Canada Act.
The BoC has five main areas of responsibility:
Monetary policy: The Bank will use monetary policy to influence the supply of money circulating in the economy with the aim of keeping inflation low and economic growth stable.
Financial system: The BoC will take actions to promote safe, sound and efficient financial systems within Canada and internationally. In this way, the BoC will conduct transactions in financial markets supporting these objectives.
Currency: The BoC designs, issues and distributes Canada's bank notes.
Funds management: The Bank of Canada is the "fiscal agent" for the Government of Canada, managing its public debt programs and foreign exchange reserves.
Setting the official overnight rate is one of the Bank's key monetary policy tools. The Bank will announce potential rate changes during one of eight annual, pre-scheduled rate announcements. Based on current economic data and BoC analysis, the Bank will either cut, raise or hold the overnight interest rate.
The Bank of Canada sets eight scheduled dates each year, where it announces the setting for the overnight rate target. The announcement is followed by a press release explaining the factors behind the decision.
About Finder
Finder is a personal finance comparison site with a mission to help Canadians save, invest, spend wisely and grow their wealth. Each month, Finder provides half a million Canadians – and more than five million globally – with independent and trustworthy financial information. Our goal is to help people make better financial decisions by providing objective, comparative insight on thousands of products and services.
As a global fintech website and app, Finder provides consumers free access to smart money content. Whether it's expert insight, product or service comparisons or independent reviews, Finder helps consumers stay on top of their finances while saving time and money.
Finder is available to consumers in Canada, Australia, America and the United Kingdom. Initially launched in 2006 by three Australians – Fred Schebesta, Frank Restuccia and Jeremy Cabral – Finder's global reach now includes thousands of products and services in hundreds of financial categories and provides expert content and independent reviews to more than five million users each month.
Romana King is the Canada Group Editor at Finder and a personal finance expert. As an award-winning personal finance writer and real estate expert, she has spent almost two decades helping Canadians make smarter money management decisions. Her first book, House Poor No More: 9 Steps That Grow the Value of Your Home and Net Worth, launched in November 2021, continues to be an Amazon bestseller and won the Excellence in Financial Journalism Book Award in 2022.
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