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On Wednesday March 6th at their regular policy meeting, the Bank of Canada (BoC) once more decided to keep their Policy Rate at 5 per cent. This means that lenders will hold their consumer Prime Rate steady at 7.20 per cent and there will be no changes to the payment amounts for variable rate mortgages or Lines of Credit.

This is the fifth time in the row now that the BoC has left the policy rate unchanged.

There are several key factors the BoC is watching. First, CPI inflation fell to 2.9% in January from 3.4% in December. This is the good news for the fight against inflation and the first time we’ve seen a number under 3% for many months. However, the BoC’s target for inflation is 2%, so there is still some way to go. Shelter prices (mortgage interest and rent costs) continue to be the biggest contributor to inflation at this point.

Those shelter prices are now noticeably biting into Canadians’ budgets, and having an oversized impact on residents in Ontario and BC (where both home prices and rental costs were already high before the pandemic). Mortgage delinquincy rates across the country as a whole increased 50 per cent by December 2023 compared to the year before, and in Ontario and BC they increased 135.2 per cent and 62 per cent respectively. This trend is going to get worse in the short term, as more people come up to their mortgage term renewals in the coming months and see their interest rates more than double.

Unfortunately for mortgage holders, the Canadian economy in general is proving more resilient than most expected. Real GDP actually grew 0.2 per cent in Q4 of 2023, and the revised numbers for Q3 came in at -0.5 per cent instead of the initial -1.2 per cent reported. This is meager performance on the whole, and especially bad when you factor in population growth (GDP per person actually fell by 2 per cent), but it’s not bad enough that the BoC will feel significant pressure to cut its policy rate soon in order to avoid substantial economic damage. As long as GDP isn’t contracting and employment numbers remain stable, the BoC can afford to hold the policy rate high in order to keep inflation falling.

While it now seems very likely that we’re at the top of this interest rate cycle and we don’t expect any further policy rate increases, it now also seems very likely the BoC will not begin cutting the policy rate until at least Q3 and that we will see just a few 0.25 per cent rate cuts over Q3 and Q4.

In the meantime, fixed mortgage rates will continue to pop up and down driven by short term economic news causing the stock and bond markets to react. The general trend will be towards lower rates over the next 2 years, but from week to week and month to month rates continue to be volatile. In this environment it is very important to begin arranging your mortgage financing well in advance (4-6 months) of any purchase or refinance so you have the best chance of catching and locking in your rate at a low point.

If you know anyone whose mortgage is renewing in the next 6-12 months, please encourage them to get in touch with us to discuss the best strategy for their goals. Since we’re at the peak of such a substantial rate increase cycle, it’s important to plan ahead in order to take advantage of the lower rates that will likely be available in 2025 and 2026.

Have questions?

We are always happy to discuss your financing needs!

Please book an appointment today with one of our broker team to discuss your plans and we’ll make sure you have all the information you need to make the best financial decision and get the best mortgage to reach your goals.

You can find our best mortgage rates here.

Also, it’s always a good idea to stay informed about any changes to the Prime Rate to understand how it may affect your payments and mortgage renewals. If you aren’t already subscribed, you can sign up to our newsletter for updates directly to your inbox.