Bank of Canada interest rate forecast report

62% of economists surveyed in the Finder interest rate forecast report predict the B.O.C will reduce the policy rate by 50 basis points to 3.25%.

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 lines of credit.

On October 23, 2024, the BoC reduced the target benchmark interest rate to:

3.75%

The next BoC interest rate decision is on:

December 11, 2024

Of the experts surveyed in the Finder: Bank of Canada Interest Rate Forecast for the December 11 Policy Rate announcement:

62% predict a drop of 0.50%.

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

October
- 0.50%
December
- 0.50%
"Despite achieving the targetted 2% inflation, the Bank is likely to cut interest rates by 50 basis points due to rising unemployment and slower-than-expected GDP growth. While a low CAD may raise some concerns about a large cut, this could be mitigated by the potential gain. The Bank may adopt a cautious approach by having a smaller cut now to evaluate the impact of potential tariff policies under the Trump administration once they resume office."

Nikola Gradojevic, Professor of Finance

October
- 0.25%
December
- 0.50%
"The inflation ticked up to 2% in October, but this is still within the target. Meanwhile, Canada's economy has been passing through a persistent declining growth momentum in GDP per capita. Hence, there is a solid case for another 0.5% cut in the policy rate."

Douglas Porter, Chief Economist

October
N/A
December
- 0.50%
"Inflation is now below target and down almost a full point since the September decision, real GDP is coming in at above half of the BoC's projection for Q3 (closer to 1.3%, widening the output gap), and the unemployment rate is still up more than 1 ppt in the past year."

Avery Shenfeld, Managing Director and Chief Economist

October
N/A
December
- 0.50%
"Interest rates will likely have to fall below 3% to get the economy moving, so there is no danger that a 50 basis point cut will be overdoing it. Moving in smaller steps would risk delivering the required stimulus too late to prevent a further escalation in unemployment. That's now a larger threat than an inflationary overheating."

Derek Holt, Head of Capital Markets Economics

October
- 0.50%
December
- 0.50%
"They are more worried about not doing enough to prevent inflation dipping below 2% than doing too much. Markets are priced for 50bps and to deliver less would make for awkward communications. They may wish to take our insurance against potential tariffs without saying so."

Lars Osberg, Professor of Economics

October
- 0.25%
December
- 0.50%
"Slack demand and Trump uncertainty requires stimulus."

Benjamin Reitzes, Canadian Rates & Macro Strategist

October
- 0.50%
December
- 0.50%
"Higher jobless rate pointing to elevated levels of slack."

Moshe Lander, Senior Lecturer in Economics

October
- 0.50%
December
- 0.50%
"The threat of tariffs, the slowing Canadian economy, the assertion by a former Bank of Canada governor that Canada is already in a recession, the highest unemployment rate in seven years (outside of Covid) and the lack of inflationary pressure gives the Bank of Canada carte blanche to pull the tab on a big interest rate cut."

Carl Gomez, Chief Economist and Head of Market Analytics

October
- 0.50%
December
- 0.25%
"Although the Bank of Canada should be lowering rates at a quicker pace given the growing slack in the economy and minimal inflation risk, recent stimulative measures by the federal government including a GST holiday and a helicopter money drop is short term but somewhat inflationary offset. As such, the central bank will likely be a bit more restrained."

Atif Kubursi, President

October
- 0.50%
December
- 0.25%
"The GDP growth is anemic and below what it could and should be. So there is still a need to keep the policy of reducing the bank rate. In the absence of the Federal government introducing a GST holiday and the distribution of checks to households and the provincial government in Ontario joining the cash distribution, there is fear that these measures are likely to add to unwelcomed inflationary pressures, BoC will be forced to moderate the rate cuts."

Angelo Melino, Professor of Economics

October
- 0.50%
December
- 0.25%
"Headline inflation is running at 2% and the unemployment rate keeps drifting up. Moving towards a more neutral policy rate is appropriate."

Philip Cross, Senior Fellow

October
- 0.25%
December
- 0.25%
"The Bank seems committed to meeting market expectations for a rate cut."

Tony Stillo, Director of Canada Economics

October
- 0.50%
December
- 0.50%
"With slack continuing to build in the labour market, GDP growing at a soft, below-potential pace and inflation at the 2% target we expect the BoC will push ahead with another 50bps rate cut next week."

Pierre Siklos, Professor of Economics

October
- 0.25%
December
HOLD
"Inflation still not reliably at target and there is little sign this will change in the near term."

Charles St-Arnaud, Chief Economist

October
- 0.25%
December
- 0.50%
"Inflation and its dynamic suggest that inflationary pressures are weak."


How low is the overnight rate expected to go over the next 12 months?

When asked how low the overnight rate will go over the next 12 months, 36% of economists surveyed in the October, 2024 Finder report believe the rate will drop to 2.50% by October, 2025.

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%.

Chase Blair - Nesto Co-Founder
Expert Opinion: What does a rate reduction mean for Canadian borrowers?

June’s inflationary pressures easing in Canada and the US signals possible rate cuts next week, providing some immediate relief to Canadian borrowers holding variable and adjustable mortgages. Canadian bond yields continue to lower due to pressures from US yields, which could lead to lower fixed mortgage rates in the weeks and months ahead. With a slew of studies showing the limited housing supply in the country, we expect lower rates could prompt Canadian consumers to move off the sidelines, giving them peace of mind to lock in their mortgage or renewal over the year.

Chase Belair – Co-founder and Principal Broker at nesto

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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Group Editor | Personal finance expert

Romana King was 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. See full bio

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