Mortgage experts are predicting that the Bank of Canada (BoC) will hold the overnight lending interest rate in their upcoming announcement.
This interest rate is also often called the policy interest rate, key interest rate or target rate.
Essentially, it acts as the benchmark cost of borrowing set by the central bank.
When the rate is updated—either dropped or increased—it influences the interest rate that lenders use for variable loans, lines of credit and mortgages. This means that potential homebuyers may get a cheaper loan if this rate is lower.
Since April 2024, this rate has been slowly cut by the Bank of Canada, from 4.75% to the 2.25% it is today.
In the BoC’s last announcement in December, the rate was held because inflation had plateaued in Canada.
The next announcement is scheduled for March 18th, where mortgage experts are predicting it will be held once again.
“Once again, the Bank of Canada is facing fresh geopolitical upheaval while it makes its monetary policy decision,” said Penelope Graham, mortgage expert at Ratehub.ca.
Graham noted that with the onset of the war in the Middle East, Canada’s economy may soon deal with rising oil prices that could potentially cause inflation growth.
She believes this will compel the BoC to hold off on future rate cuts, despite increased struggles for Canadians as living costs increase and ongoing trade becomes more uncertain.
“Given the situation is evolving quickly, the Bank is most likely to keep a hold on rates in its March announcement, with little to no rate relief on the horizon for the remainder of this year,” Graham continued.
The rate being held at 2.25% may have an impact on Canada’s housing market in the coming months, if this is what the BoC decides to do.
Currently, variable mortgage rates are the lowest-priced borrowing option, with a five-year variable term being as low as 3.35% in some markets.
“This will remain the case as long as the Bank holds its trend-setting rate,” Graham explained.
“Going variable can offer borrowers great value, as long as they have the risk tolerance and room in their budget to absorb future increases, or a plan to lock into a fixed-rate option should the Bank revert to a hiking cycle.”
Comparatively, fixed mortgage rates are still relatively competitive, with the lowest five-year term in Canada being 3.69%.
However, Graham expects this pricing will not last as upward pressure builds.
“The same geopolitical uncertainty and inflation pressures have raised doubts that the US Federal Reserve will cut American interest rates,” she said.
“This has pushed up the 10-year Treasury yield—considered the global benchmark—back above the 4.1% range.”
This has reportedly influenced the Government of Canada’s five-year bond yield, which is used by lenders when pricing their fixed mortgage rates.
According to Graham, lenders are already increasing their fixed rates, and more hikes are likely to come in the short term.
She concluded by predicting that given current pressures, home buyers will likely not be returning to the market in droves this spring.
