Canadian Banks Release Interest Rate Predictions

Alyssa Furtado
by Alyssa Furtado August 30, 2010 / No Comments

Canada’s Big 5 banks recently released their interest rate forecasts. Their projections are summarized as follows.

Projections in the Overnight Rate (All number are in percentage points and are rounded to the nearest 1/4 point)

Bank 2010 2011
BMO 1.00 2.50
CIBC 1.00 2.00
RBC 1.25 2.75
Scotia 1.00 2.25
TD 1.00 2.00
Average 1.00 2.25

 

The 2010 forecast represents a change of +25 basis points from the current overnight rate of 0.75%, while the 2011 forecast represents a 150 basis point change from 0.75%.

5-Year Government Bond Yield Forecast

Bank 2010 2011
BMO 2.45 3.58
RBC 2.45 3.50
Scotia 2.70 3.50
TD 2.40 3.05
Average 2.50 3.41

5-year fixed rates follow 5-year government bond yields.

The 2010 forecast represents a change of +36 basis points from the current yields, while the 2011 forecast represents a +127 basis point change.

Variable Rate Mortgage Forecast

The average outlook right now is a prime rate increase of 150 basis points over the next 16 months, implying a  prime rate of 4.25% by December 31, 2011 (the current prime rate is 2.75%). Based on a 70 basis point discount applied to the prime rate to calculate variable rates, economists are predicting that 5-year variable mortgage rates will rest in the 3.55% range by the end of 2011.

Fixed-Rate Mortgage Forecast

5-year bond yields are expected to climb 137 basis points placing the 5-year bond yield at 3.41% by the end of 2011. Assuming a 120 basis point spread above yields, 5-year fixed mortgage rates are predicted to be approximately 4.61% by the end of 2011.

To view the most accurate and up-to-date Canadian mortgage rates, visit Ratehub.ca’s Best Mortgage Rates. Use our mortgage calculator to view the effects of the recent interest rate cuts on your mortgage payments.

Compare BMO mortgage rates; RBC mortgage rates; CIBC mortgage rates; Scotiabank mortgage rates; TD mortgage rates.