rates
02. rates Inflation has dipped back inside the Bank of Canada’s target range, which has yielded collective anticipation of impending interest rate cuts. Indeed, expect the first cut to arrive in relatively short order.
IS OUR INTEREST IN INFLATION DROPPING?
If 2022 was all about inflation, then 2023 was most certainly defined by once-in-a-generation interest rates. The Bank of Canada raised its policy rate three more times in 2023, to 5.0% before holding steady through the first three months of 2024. Inflation, meanwhile, has generally been declining, though it has fluctuated in its downward path. Most recently, the headline inflation rate for January dipped back into the Bank of Canada’s target range (of 1-3%) at 2.9% though it’s still above the ultimate target of 2.0%. Against that backdrop of inflation the conversation has focused on when interest rates will start to decline, and the good news for borrowers is that they already have. Fixed mortgage rates have been decreasing of late, on the heels of falling bond yields. The Government of Canada 5-year bond yield monthly average peaked in early September
at 4.25% before declining through the end of the year to 3.17% in December, and has risen modestly in the early part of the year. Discounted 5-year fixed mortgage rates have followed suit, declining from an average of 5.49% in October to 4.84% in January. But the main focus remains on the Bank of Canada, which sets variable interest rates through its policy rate, and influences fixed rates and bond markets through its quantitative tightening program. The Bank most recently held its policy rate on March 6th, though shifted their tone to note that “the data point to an economy in modest excess supply” likely signalling they are almost ready to start loosening their restrictive monetary policy. As headline inflation and core measures decline further in 2024, expect the Bank to begin its loosening cycle.
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