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Bank of Canada interest rate forecast report

Experts agree: BoC will hold the policy rate at 5.00% at March 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 March 6, 2024, the BoC held the target benchmark interest rate at:

5.00%

The next BoC interest rate decision is on:

April 10, 2024

Of the experts surveyed in the Finder: Bank of Canada Interest Rate Forecast for the March 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

January
HOLD
March
HOLD
"The Bank needs to allow more time to realize the impact of a long-streak of tightening money policy on inflation. However, they should be cautious to minimize the adverse effects of such policies on the economy, as geopolitical tensions and internal factors are causing dampening effects on the Canadian economy."

Nikola Gradojevic, Professor of Finance

January
HOLD
March
HOLD
"The inflation numbers from December and January have been affected by seasonal events, although the current direction is promising. It would be premature for the Bank of Canada to cut interest rates in March. We need more information and substantial economic improvements in the lives of Canadians before the interest rates can start coming down."

Moshe Lander, Senior Lecturer in Economics

January
HOLD
March
HOLD
"While inflation has fallen into the Bank of Canada's target range, there is no evidence to suggest that it will stay there and that the worst effects of inflation have been contained. The Bank cannot reduce interest rates until it is confident that inflation will not take off again."

Sherry Cooper, Chief Economist

January
HOLD
March
HOLD
"Core inflation is still too high, and the economy is likely going to post moderate growth in Q4."

Derek Holt, Head of Capital Markets Economics

January
N/A
March
HOLD
"The Bank of Canada has been very clear that they wish to evaluate more data in order to assess whether core inflation is durably coming into line with its 2% target. They don't have that confidence at this point."

Sebastien Lavoie, Chief Economist

January
HOLD
March
HOLD
"Underlying inflationary pressures eased in January. At last, less than half of CPI items are growing at a pace of 3% and over. Total CPI inflation just has to cool down another notch, closer to 2.5%, in order to prudently begin a prudent easing bias."

Angelo Melino, Professor of Economics

January
HOLD
March
HOLD
"Core inflation is still high relative to target and the economy is weak but showing some resiliency so the Bank can wait a bit longer."

Lars Osberg, Professor of Economics

January
HOLD
March
HOLD
"Inflation anxieties dominate Bank thinking."

Carl Gomez, Chief Economist and Head of Market Analytics

January
HOLD
March
HOLD
"The Bank of Canada has suggested that they continue to be comfortable where the policy rate is at given economic and inflationary trends. They have not yet signaled that their bias has changed either."

Tony Stillo, Director of Canada Economics

January
N/A
March
HOLD
"Despite stronger-than-expected GDP growth in Q4, the economy still faces headwinds. We expect a moderate contraction in economic activity in the first half of 2024 will help ease headline inflation back to its 2% target by late this year. Accordingly, we believe the Bank of Canada will keep the policy steady at 5% until June when it will begin to slowly lower the rate to 4.25% by the end of 2024."

Philip Cross, Senior Fellow

January
N/A
March
HOLD
"Latest readings on GDP and jobs better than expected, no sign lower rates are needed."

Pierre Siklos, Professor of Economics

January
HOLD
March
HOLD
"Inflation may be down but we don't have clear evidence that it is likely to remain consistently within the target range. More importantly, there is growing evidence that short-term inflation expectations have become unanchored. Households especially don't believe inflation will remain in the 1-3% target range."

Charles St-Arnaud, Chief Economist

January
HOLD
March
HOLD
"Conditions are not yet right to justify a cut. Core inflation and its momentum (3m/3m annualized rate) are still above 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

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.

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 reduce 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 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

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