Bank of Canada Interest Rate Update – December 6, 2023

Bank of Canada held its interest rate steady at 5 percent on December 6, 2023. This aligns with expectations given the recent economic challenges in Canada.

In the Bank’s statement, they acknowledged that economic growth had slowed throughout 2023, expected to continue into the fourth quarter. This has led to a reduction in inflationary pressure, though the Bank remains cautious and concerned about inflation risks.

Bank Cycle

It appears that the Bank’s cycle of interest rate hikes is coming to an end. The focus now shifts to discussions about when and how the Bank may reduce rates. The Bank’s neutral rate estimate is between 2 and 3 percent, suggesting potential rate cuts of 200 to 300 basis points once inflation stabilizes.

Bond Yield

Canadian bond yields, after reaching a 15-year high, are now declining as financial markets anticipate reduced inflation and the eventual end of Bank of Canada rate hikes. The five-year Government of Canada bond yield has held steady at around 3.5 percent, hinting at lower fixed mortgage rates in 2024.

Mortgage Rates

Our projection is for the average 5-year fixed mortgage rate to fall to about 5 percent by the end of 2024, with variable rates expected to decrease as the bank lowers their rates, likely in the first or second quarter of 2024.

Bank of Canada Decision

In summary, the Bank of Canada’s decision to maintain the 5 percent interest rate reflects Canada’s economic challenges in 2023. While the economy has slowed, easing inflation suggests the end of the central bank’s rate-hiking cycle. As we enter 2024, Canadians can anticipate potential rate cuts, which will significantly impact mortgage rates and the financial landscape.

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