Bank of Canada expected to hold key rate steady: economists

Belmor MortgageNews

By Martin MacMahon Posted Dec 5, 2023 07:37:36 AM.

It’s been a rough couple of years for people with variable-rate mortgages, and many are watching to see what the Bank of Canada does with its key rate on Wednesday.

The feeling from most economists is that the Bank of Canada will maintain its five per cent rate.

“It’s far from mission accomplished,” BMO Capital Markets Senior Economist Sal Guatieri said while speaking on CityNews’ Now You Know with Rob Snow on Monday. “We’re not close to the two per cent [inflation] target yet, and it will take time before the Bank of Canada has that confidence or assurance that inflation will go all the way back to two per cent on a sustained basis.”

But Clinton Wilkins with Centum Home Lenders in Dartmouth, Nova Scotia, is hoping rates start to drop in the coming months.

“There certainly is some downward pressure now,” Wilkins said on Monday. “And I think maybe even by the springtime, we might see some signs of softening. Obviously, some good news around inflation, and interestingly enough with the bond yields last week, certainly some pressure on the fixed-rate mortgage products as well.”

Wilkins also noted that consumer behaviour is changing, with the popularity of variable rate mortgages growing in recent weeks, as more people start to believe rates will begin falling.

The BoC last held its prime rate on Oct. 25 but did not rule out further rate hikes as price pressures remain high.

“With clearer signs that monetary policy is moderating spending and relieving price pressures, governing council decided to hold the policy rate at five per cent,” the Bank of Canada said in a news release at that time.

“However, governing council is concerned that progress toward price stability is slow and inflationary risks have increased, and is prepared to raise the policy rate further if needed.”

Meanwhile, growth is expected to come in weaker in 2024, with real GDP rising by 0.9 per cent. Growth is expected to rebound to 2.5 per cent in 2025.

Inflation is still expected to return to the two per cent target in 2025, however, the central bank says it expects inflation to be higher in the short term.

The Bank of Canada projects inflation will average about 3.5 per cent through the middle of 2024.