The Bank of Canada announced this morning that they will be increasing their overnight rate by another 0.50%. The overnight rate is what mortgage lenders use to set their prime rate, which means it will now increase to 5.95%. The increases should be implemented by all lenders within the next couple of days.

The good news is that they only increased the rate by 0.50%.  I never thought I would ever say that an increase is ‘good news’, but many were expecting it to increase by 0.75%.  Instead, they kept it to only 0.50%.

There is more good news as well.

As the market was expecting an increase of 0.75%, this ‘surprise’ has resulted in bond yields dropping by more than 6% at the time I’m writing this. This is enough to remove upward pressure on fixed mortgage rates.  This doesn’t mean that it will last. We’ll have to wait to see. But if it’s enough to create more optimism in the market, then it’s possible they could start to trend back downwards, which would then result in downward pressure on fixed mortgage rates.  We’ll soon see.

 

More Rate Increases Expected

The Bank of Canada also announced that more rate increases will be needed to reach their inflation goal of 2%. That’s not a surprise. The good news is that they are still optimistic in bringing inflation down to 3% by the end of 2023, and reaching their goal of 2% by the end of 2024.

 

The Big Six Banks Change Their Forecasts

The banks were originally projecting increases of another 0.50% to 0.75% by the end of this year. They recently adjusted their forecast to 0.75% to 1.00%.  If they are right, then this would mean that we can expect the Bank to increase their rate by another 0.25% to 0.50% on the next and final scheduled rate announcement on December 7th.

More good news is that all six of the big banks are in agreement that there will be no further increases in this cycle. In fact, three are expecting the BOC to start cutting their rate as early as the third quarter of 2023. If this were to happen, then this would mean that we could start seeing cuts in 8-9 months. I guess we’ll see.

Three of the big banks, BMO, RBC and CIBC, are all projecting that there will be no BOC rate movement at all in 2023.

Here are the 2023 forecasts for the other half:

National Bank:  0.25% cut in the third quarter followed by another 0.25% cut in the fourth.

TD Bank: 1.00% cut in the fourth quarter

Scotiabank: 0.25% cut in the fourth quarter

It’s nice to see that there are now three big banks predicting forecasts next year.  Let’s see if more start to jump on that bandwagon.

 

Conclusion

Much like weather forecasts, rate forecasts are nothing more than educated predictions.  They can and do change, and they are often wrong.  No one knows for sure and all we can do is speculate based on the information we have available to us at the time.  While the big six recently adjusted their forecasts to add another 0.25% before the end of the year, it was nothing radical. It’s good news that all six are holding to their predictions that we won’t see any more increases in 2023.

If the Bank of Canada stays on its target and is correct in their projection that they’ll bring inflation down to 3% by the end of 2023, and then 2% by the end of 2024, then the anticipated rate cuts will be on their way, as expected.

Time will tell and anything can happen.

You can read the announcement from the Bank of Canada here.