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Bank of Canada holds target interest rate at 5% in April 2024 announcement

There’s little change on the horizon for Canadian mortgage rates. The Bank of Canada announced this morning that it is keeping its trend-setting overnight lending rate – which in turn influences the cost of variable borrowing mortgage products offered by consumer banks – at 5%, where it has remained since July 2023.

As a result, the Prime rate in Canada will remain at 7.2%, and those with variable-rate mortgages won’t see any change to their monthly payments, or the amount of their payment that services interest costs.

This marks the sixth consecutive announcement where the rate has remained unchanged at its two-decade high, with the hold largely anticipated by the markets and analysts.

The focus, rather, is on the Bank’s tone to determine the timing of potential rate relief. Optimism had been growing that rate cuts could come as early as June, following a promising February inflation report of 2.8% – within the Bank’s 2 -3% inflation target band. According to Refinitiv data out earlier this week, markets had been pricing in a 60% change of rate cuts come June.

Inflation remains too high for Bank’s comfort

However, the Bank made it clear today that a wait-and-see approach continues to be warranted as inflation risks remain too high for its liking.

“Based on the outlook, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet. While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months,” states the Bank’s announcement. “The Council will be looking for evidence that this downward momentum is sustained.”

“The timing of rate cuts has certainly not moved up based on the announcement from the Bank today,” says James Laird, Co-CEO of and President of CanWise mortgage lender. “Progress is being made in the fight to return to target inflation, but more needs to happen before the Bank will think a rate cut is appropriate.”

While the announcement notes recent improvement, shelter inflation and mortgage interest costs – which are the largest contributors to CPI – still exceed the Bank’s comfort level. As well, the Core measures – which the Bank monitors closely when judging its rate path – remain above its target, at 3%. However, this has improved from 3.5% in February, with the overall three-month trend pointing downward. The Bank says it  expects CPI inflation to stay close to 3% during the first half of this year, move below 2½% in the second half, and reach the 2% inflation target in 2025.

BoC Governor Tiff Macklem doubled down on this stance in his opening remarks following the announcement, saying, the Bank is “looking for evidence that the recent further easing in underlying inflation will be sustained,” as it considers how much longer to hold its policy rate, though it’s clear that “monetary policy is working.”

The Bank also expects economic growth to pick up in 2024 alongside the housing market, after stalling in the second half of 2023. “This largely reflects both strong population growth and a recovery in spending by households,” states the announcement. “Residential investment is strengthening, responding to continued robust demand for housing. The contribution to growth from spending by governments has also increased.” 

Laird adds that there may be more insights when the Bank releases their announcement minutes in the coming weeks, as to whether the Governing Council debated whether to cut rates. “When the Summary of Deliberations for this announcement is released, it will be interesting to see if there is any further information on the possibility of rate cuts, and if they were on the table at all for this announcement.”

Impact on variable mortgage borrowers

Today’s rate hold spells prolonged stagnancy for those holding variable-rate mortgages; as there will be no change to the Prime rate, those with adjustable-rate mortgages won’t see any change to their payment size, and those on fixed payment schedules won’t see any change to the amount of their payment that goes toward their principal.

“Anyone with a variable rate or HELOC will need to continue to be patient with the progress towards conditions appropriate for a rate cut,” Laird says.

Impact on fixed mortgage borrowers

While the Bank of Canada’s rate doesn’t directly influence the fixed cost of borrowing, the tone of today’s announcement will be reflected by the bond market, which lenders use as the floor for their fixed mortgage rate pricing. The five-year government of Canada bond has been hovering in the 3.6% range over the past week, and has remained elevated following a stronger-than-expected jobs report out of the US. However, given markets expected this most recent rate hold, today’s announcement, specifically, won’t make any waves. 

“Bond markets were expecting today’s announcement, therefore fixed rates remain the same,” says Laird.

That means those currently shopping for a fixed mortgage rate, or looking to renew their term, won’t see much change in their available options.

Impact on the housing market

The first few months of the spring housing market have hinted at a strong season to come; the latest data from the Canadian Real Estate Association reveals year-over-year home sales rose by 19.7%, while the number of homes newly listed for sale rose nearly 25%. The overall sentiment, points out CREA, is of renewed enthusiasm, as buyers and sellers alike anticipate lower mortgage rates in the near future. Laird adds that “home prices will remain largely unaffected,” given today’s announcement hasn’t moved the dial.

Impact on savings accounts and investment products

GIC rates are partly influenced by the Bank of Canada’s interest rate announcements. When benchmark interest rates rise, the rates banks pay on GICs and other financial products like high-interest savings accounts (HISAs) usually also increase.

Following the 10 interest rate hikes starting in March 2022, that brought our benchmark interest rate to 5% from 0.25%, GIC rates increased, too. Now, as economists are predicting that target interest rates will drop beginning in summer 2024, longer term GICs are paying lower rates than shorter-term GICs. This is known as the inverted yield curve effect. You can still get GIC rates today as high as 4.50% for 4 to 5 year terms, though, as you can see on our best GIC rates page.

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Penelope Graham, Director of Content

Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.