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Bank of Canada interest rate forecast report

Bank of Canada reduced the policy rate by 25 basis points in the June 5 announcement confirming predictions of 60% of panelists surveyed in the Finder B.O.C forecast report.

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 June 5, 2024, the BoC reduced the target benchmark interest rate to:

4.75%

The next BoC interest rate decision is on:

July 24th, 2024

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

60% predicted a drop of 0.25% while 40% 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

April
HOLD
June
HOLD
"It's likely that the Bank will maintain the rate either to see it settling at the target of 2% or at least maintaining below 3%. The recent employment and inflation numbers may allow the Bank to buy more time before cutting the rate. The Bank officials might be worried that cutting the rate now will drastically change consumer’s and investor’s expectations. However, the Bank may also hint at how soon they may act to change the course of action."

Nikola Gradojevic, Professor of Finance

April
HOLD
June
HOLD
"The inflation rate in April ticked in the right direction, but I think we need to see a more clear trend in inflation before policy rate cuts can commence. It is more likely the Bank of Canada will choose to be more patient and start cutting rates in July, rather than in June."

Benjamin Reitzes, Canadian Rates & Macro Strategist

April
N/A
June
- 0.25%
"Core inflation has slowed for four consecutive months."

Moshe Lander, Senior Lecturer in Economics

April
HOLD
June
- 0.25%
"The Bank has been sending signals for months that it is ready to start cutting its policy rate once it is comfortable that inflation will stay below the three percent upper limit. April's inflation number should be enough to give it cover to begin doing so."

Sebastien Lavoie, Chief Economist

April
HOLD
June
- 0.25%
"It is difficult to ask for more. Core CPI has progressed very slowly so far this year, a trend well entrenched. Since core CPI inflation is a very good leading indicator of total CPI inflation in the short-run, the BoC should be ready for the next step: embark on a very prudent easing path."

Atif Kubursi, President

April
- 0.25%
June
- 0.25%
"The inflation rate has dropped to within the BOC target level. BOC needs to be proactive and not reactive. It cannot wait until the economy is contracting to change its rate, it has to act before the economy starts to contract. The employment demand is still strong but the unemployment rate remains stubbornly high. There is the issue of jumping into decreasing the rate before the Americans, this will put pressure in our exchange rate and could raise the cost of imports but the time is right now."

Angelo Melino, Professor of Economics

April
HOLD
June
HOLD
"The Bank is close to making a decision to cut its policy rate but will wait until a meeting that includes the Monetary Policy Report so that it can give a more complete explanation of what is behind its decision."

Philip Cross, Senior Fellow

April
N/A
June
- 0.25%
"Bank yields to its own bias and broad consensus in financial markets that inflation is under control."

Lars Osberg, Professor of Economics

April
- 0.25%
June
- 0.25%
"Unemployment up and inflation down in the target band. It's time to ease up on monetary restraint."

Carl Gomez, Chief Economist and Head of Market Analytics

April
HOLD
June
HOLD
"Although there is more than enough evidence that the BoC should begin lowering rates, they will continue to err on the side of extreme caution and telegraph to the market that they are vigilant when it comes to fighting inflation, even though that battle is long over."

Tony Stillo, Director of Canada Economics

April
HOLD
June
- 0.25%
"April's CPI figures should help convince the Bank of Canada that inflation is sustainably slowing. Along with economic momentum weakening as the impact of past rate hikes fully materializes, we believe there is sufficient evidence for the Bank's first quarter-point cut at the June 5th meeting."

Pierre Siklos, Professor of Economics

April
HOLD
June
HOLD
"Inflation remains too high though I acknowledge the pressure on the Bank to move as other small open economy central banks already have (e.g., Sweden)."

Derek Holt, Head of Capital Markets Economics

April
N/A
June
HOLD
"Forward guidance for one thing. Macklem said in early May that he wanted 'months' of additional evidence and it has only been one month since then. There is a huge data advantage to waiting until at least July. Canadian consumer spending is ripping with two back-to-back quarterly gains of 3%+ such that the BoC needs to be very careful that it doesn't overheat conditions again."

Charles St-Arnaud, Chief Economist

April
HOLD
June
- 0.25%
"A combination of: inflation below 3%, all measures of core inflation also below 3%, inflation momentum (3m/3m annualized change) in BoC's measures of inflation is consistent with target and the breadth of inflationary pressures (share of CPI component growing above 3% and 5%) is back to the historical norm."

Avery Shenfeld, Managing Director and Chief Economist

April
N/A
June
- 0.25%
"Enough progress has been made on inflation to begin to ease up a bit on monetary restraint. Although growth picked up somewhat in the first quarter, the labour market continues to have some slack, and we want to avoid leaning against economic growth by any more than is necessary to achieve the inflation target."


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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