Making sense of the Bank of Canada interest rate decision on March 6, 2024

As a result of the latest rate hold, the prime rate in Canada will remain at 7.2%. This might not seem like big news, but this is what lenders, from the Big Five Banks to other financial institutions, use to underpin their variable borrowing product pricing.

That the BoC would stick to the status quo was widely expected by market analysts and economists. A lower-than-expected January 2024 inflation reading of 2.9% took further pressure off the central bank, allowing it to continue its wait-and-see approach on rates. And, while the year-end gross domestic product (GDP) report came in hot, with a 1% uptick in the fourth quarter of 2023, overall lacklustre economic performance has made a firm case for ending the rate hike cycle. 

However, the Bank provided no hints as to how long this holding pattern will last. In its announcement, while acknowledging that inflation has solidly declined from its June 2022 peak of 8.1%, the consumer price index (CPI) remains stubbornly above its 2% average with the core measures in the 3% to 3.5% range. (The core measures strip out the most volatile items, like housing and food costs.)

In its announcement accompanying the rate decision, the BoC’s Governing Council—the panel of economists who set the nation’s monetary policy—made it clear that until sustainable progress is made with the CPI, the Bank of Canada interest rate won’t be going anywhere.

“The Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation,” states the Bank’s rate announcement release. “[The] Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth and corporate pricing behaviour.” 

This fifth consecutive hold means key interest rates haven’t changed since September 2023. While that’s led to welcome stability for some, others are feeling the stagnancy. Here’s what the latest rate direction means for Canadians, depending on their financial interests.

What the BoC rate hold means for mortgage borrowers

Canadians with variable-rate mortgage terms are the most impacted group affected by the Bank of Canada interest rate hold. Their mortgage payments are based on the prime rate in Canada, as an extension of the overnight lending rate. 

These borrowers in Canada have been walloped by the rate hiking cycle that took place between March 2022 and July 2023. Those with adjustable-rate variable mortgages—which have payments that fluctuate alongside the Bank’s rate moves—had payments soar by as much as 70%, according to the Bank’s own research. Those Canadians with fixed payment schedules, meanwhile, have seen the portion of their payment that goes toward their principal whittle smaller with every rate increase, with some Canadian borrowers even entering negative amortization on their mortgages.

For all variable-rate borrowers, today’s rate stability offers some welcome relief, though they’re likely disappointed that the BoC didn’t offer a timeline as to when the rate will eventually decrease. And, Canadians shopping for the best mortgage rate, including those looking to renew, are also likely frustrated by the lack of movement. While variable rates remain frozen at last summer’s levels, fixed mortgage rates have seen some slight easing in recent months due to lowering bond yields.

Today’s lowest insured five-year fixed term is now 4.79%, compared to above 5% at the end of 2023. However, those Canadians expecting greater downward movement certainly have longer to wait, as the bond market reacts in fits and starts to looser monetary policy.

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What the BoC rate hold means for investors

Speaking of the bond market, today’s Canadian investors will need to be patient. Yields on five-year government bonds have been rollercoastering around the upper 3% range since the start of the year, after hitting a peak of 4.2% in October 2023. As the March 6, 2024, rate hold was widely baked into the market, it hasn’t resulted in any significant downward movement on yields or improvement in bond value—at least, not yet. These gains won’t materialize until the BoC cuts rates, likely toward the second half of 2024.

Stock markets, meanwhile, have been bouncing back hard on the expectations of more accommodative borrowing costs. The TSX Composite has been above 21,500 this week, up from their pit of 18,200 in November 2023 (when the “higher for longer” fears started). In general, recovery has been strongest among the most interest-rate sensitive companies, a trend that will continue as rate cut expectations strengthen.

What the BoC rate hold means for property investors

The last two years have been a rocky ride for Canadian property investors and landlords financing a new build, or looking to purchase a secondary property. As interest rates soared, lenders in Canada have become more tight-fisted on mortgages for capital projects, which are always variable based. This has impacted everything from the cost of financing construction to interest rates for second property mortgages. And, as rates have increased while home values plunged, more investment properties have been exposed to appraisal risk.

Overall, property investors will welcome declining interest rates and the relief they bring to their bottom lines.

What the BoC rate hold means for Canadians’ savings

The one silver lining of rising interest rates is that it boosted the earning potential for passive savings; for the first time in many years, it was possible to park cash in a high-interest savings account or guaranteed investment certificate (GIC) and earn as much as 5% interest, without having to expose funds to higher-risk investments.

Those days are surely numbered. Lenders can move at a sloth-like pace when increasing deposit rates, but they’ll be nimble to slash them once rate cuts do indeed—eventually—come to fruition.

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Read more about the Bank of Canada:

• How the Bank of Canada’s benchmark rate impacts your finances
• Bank of Canada holds key rate steady at 5%, says too early to cut
• What to expect for GICs in 2024
• What would a central bank digital currency mean for Canada? We ask 5 experts

About Penelope Graham

As director of content at Ratehub.ca, Penelope has over a decade of experience covering real estate, mortgage and personal finance. Her commentary is featured on BNN Bloomberg, CBC and The Globe and Mail.

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