Hopes of big Bank of Canada rate cuts are fading fast
Financial market watchers see a growing chance that Canada’s economy will continue to wobble in the months ahead – but few are expecting a series of significant interest rate cuts by the central bank anytime soon.
In the Bank of Canada’s latest national survey of business and financial leaders, around one in three respondents indicated that they believe the country is already in a recession or will soon slip into one.
Still, while a majority say the door hasn’t completely shut on rate cuts, most expect the Bank’s policy rate to hold steady at 2.25% for the foreseeable future and tick up to 2.5% by 2027’s third quarter.
For the mortgage market, that’s a signal that the central bank’s rate-cutting cycle, which began in 2024 but has slowed this year, may have already ground to a halt.
And that could have big implications for the fixed-vs-variable debate, with continuing economic volatility this year already pushing many Canadians towards fixed-rate mortgages.
“There’s always going to be a lot of predictions and forecasts but really no-one knows what’s going to happen even next month, a couple of months from now, or next quarter,” Victor Tran, a mortgage agent with Tango Financial and RATESDOTCA housing and mortgage expert, told Canadian Mortgage Professional.
“But certainly with the news circulating around the media stating that the Bank of Canada may be done dropping rates… and they’re going to hold for a little while and things are going to start to increase again, that definitely worries a lot of Canadians shopping around for a mortgage. So they would be leaning towards fixed rates for that stability.”
Fixed-rate outlook gets another boost
There’s currently not much difference between one-to-five-year fixed rates and five-year variable rates, with both typically sitting in a range between the high threes and low fours.
Nonetheless, most borrowers seem to view fixed rates as the better option because chances of further central bank cuts are fading.
“Because they’re so close and there’s talk that we might be at the bottom of the overnight lending rate – maybe we’ll see another drop – most people just call it a day and go for that fixed rate, and just lock it in,” Tran said.
“Most people are not comfortable in taking any risk of fluctuating payments or rising rates. There’s definitely more thought put into that now based on some new information from the Bank of Canada and different forecasts.”
Survey reinforces what most analysts already expected
The Bank of Canada’s survey – released this week – isn’t exactly a gamechanger for the mortgage market. Some of Canada’s banking giants differ on where the central bank’s benchmark rate is likely to end up by the end of next year, but none had been forecasting a string of huge cuts.
The Bank’s governor Tiff Macklem signalled that rates were unlikely to move much lower after its last decision, a quarter-point cut at the end of October. “We think monetary policy is in about the right place to provide some support, while keeping inflation well controlled,” he said in Toronto in the days following that move.
But the new report still marks a further boost for the fixed-rate market, whose popularity has jumped recently because of economic volatility, recession fears and lingering trade tensions between Canada and the United States.
“Fixed rates have always been the more popular choice – especially nowadays, since most people are seeking stability,” Tran said. “With a locked-in rate for three years or even a five-year fixed, payments are not going to change for that duration. Then [borrowers] just have to worry about other fluctuating expenses.
“Other fixed expenses that we should always expect to increase are property taxes, utilities, condo fees, home insurance, all those expenses tied to housing. So knowing that the mortgage payment is locked in, fixed, and not going to change for a set amount of time is definitely reassuring. That’s going to be a huge bulk of someone’s monthly budget.”
Source CMP
By Fergal McAlinden
