Mortgage experts predict oil prices may impact Bank of Canada key interest rate decision

The Bank of Canada (BoC) will announce its decision on whether to hold, raise or lower the key overnight interest rate on Wednesday, April 29th. 

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 BoC, from 4.75% to the 2.25% it is today. 

According to Penelope Graham, mortgage expert at Ratehub.ca, this month’s BoC announcement will be the first to be impacted by rising oil prices and the war in Iran. 

“The Bank of Canada will remain firmly on the sidelines in its upcoming rate announcement,” said Graham.

“The March inflation report—the first to show how the war in Iran is impacting gas prices—has given the central bank some temporary breathing room.”

She added that while inflation has risen to the BoC’s 2% target, this increase mostly impacts the energy industry. Meanwhile, other industries and categories of the Consumer Price Index (CPI) have shown improvement, or been unaffected. 

“BoC Governor Tiff Macklem has since stated that monetary policymakers will look through this latest inflation increase—but should it start to contaminate other consumer goods categories, it would pose a medium-term risk that the Bank will be forced to respond to,” continued Graham. 

For those looking to buy homes, Graham says it may be best to buy a mortgage sooner rather than later, as geopolitical factors like the war in Iran can quickly impact the market, should the key overnight interest rate be hiked. 

“Rather than trying to time the market, the best move for today’s mortgage shopper—or anyone coming up for renewal—is to secure access to today’s best mortgage rates with a pre-approval and rate hold, to shield against any market volatility for up to 120 days,” she explained. 

Fixed mortgage rates have reportedly increased sharply since mid-March, rising between 25 to 40 basis points across all Canadian lenders. 

Conversely, Graham advises that variable mortgage rates currently offer the best value, with the lowest five-year term currently at 3.35%. 

“For risk-tolerant borrowers, this can provide great savings—but anyone considering a floating rate should heed the possibility they may rise again before the year is through.”

Overall, the mortgage expert says the spring real estate market is likely to be subdued.