After last week’s disappointing inflation numbers reported by our neighbors south of the border, Canada’s headline inflation has dropped to 2.9% year over year… right in line with what economists were expecting. This is the first time we’ve seen the number start with a two in almost three years and is exactly what the Bank of Canada was looking for.  

Does this mean that we’ll see the first rate cut on their next scheduled announcement date of June 5th?   

While this is what many are expecting, I wouldn’t crack open the champagne bottle just yet. Canadian inflation isn’t the only thing the Bank of Canada has their eye on.  

US inflation continues to be a problem and is the sole reason why fixed mortgage rates have been increasing this week. This doesn’t mean that Canada will wait for the US before cutting their rate, but they would find it easier if the US was experiencing the same decline in inflation as we’re seeing on this side of the border.  

 

Fixed Mortgage Rates Rising  

After last week’s US CPI inflation report was released, bond yields spiked up sharply, resulting in immediate upward pressure on fixed mortgage rates. Multiple lenders reacted by announcing increases to fixed rates later that day, with more lenders announcing fixed rate hikes as early as yesterday (Tuesday, April 16th).  

It was great news that the Bank of Canada held their rate with last week’s announcement, but the bond market was more concerned with what’s happening in the US, hence the spike.  

Even if the Bank of Canada comes through with a cut on June 5th, that doesn’t mean that we’ll see fixed rates drop. In fact, there is no guarantee that they won’t rise further as they can have a mind of their own. Fixed rates do not move in line with the Bank of Canada rate and can even move in opposite directions on occasion.  

The next US inflation report is expected on May 15th. If it comes in higher than expected once again, then this could further fuel upward pressure on fixed rates. The US economy has been strong, which does not bode well for inflation.  

The next Canadian CPI inflation report is scheduled for release on May 21st, six days after the US. Let’s keep our fingers crossed that it drops yet again. Should that be the case, then a cut on June 5th seems even more likely, if not probable, even if the US inflation report comes in higher.  

If the Bank of Canada decides to maintain their current rate on June 5th, then chances of a cut on July 24th are all that much stronger, which is their next scheduled announcement date. But there is a lot that can happen in the three months in between.  

 

Conclusion  

Until the June 5th Bank of Canada announcement, we’ll be on the edge of our seats. The first rate cut will be indeed worth celebrating. It should be the first of multiple to follow, and we may even see some oversized rate cuts along the way.  

But regardless of what happens with the Bank of Canada rate, we also need to keep a close eye on fixed rates. US inflation seems to be the biggest problem right now, and if it persists, then it’s possible we could see fixed rates continue to rise, which can happen despite cuts from the BoC.  

There is still a great deal of uncertainty, and anything can happen. We’re still not at the point where we can pop that cork. But I’m really looking forward the day when we can. We all are.  

Anyone with a purchase closing or mortgage renewing within the next 120 days should reach out to us ASAP to get the process started, which will then lock in a rate.  

We can always get your mortgage rate lowered or move you to a different lender should rates drop. We do this for our clients regularly. The only way to protect yourself against potentially rising fixed rates is to get one locked in. You’re then at least guaranteed that your rate will not be higher than that. There are still a couple of lenders who have not yet increased their rates, but it’s just a matter of time before they do.