By Penelope Graham on April 10, 2024 Estimated reading time: 5 minutes
How the Bank of Canada’s sixth rate hold will impact Canadians, and what to know whether you’re a borrower, investor or saver.
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Photo by RDNE Stock project from Pexels
Those hoping for an interest rate shake-up will need to wait a little longer. The Bank of Canada (BoC) announced on the morning of April 10 that it will continue to keep its overnight lending rate—the benchmark used by consumer lenders when setting their variable mortgage rate pricing—unchanged at 5%.
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Sentiment around the interest rate decision
The rate hold was largely anticipated by markets and economists. Many hoped it to be the central bank’s last hold before pivoting to a cutting cycle (lowering the rate, finally). Optimism around this has grown following February’s inflation report, in which the Consumer Price Index (CPI) clocked in at 2.8%, which is within one percentage point of the BoC’s 2% target.
However, the BoC itself seems less enthusiastic about this prospect.
The tone and language used in the announcement by the BoC’s Governing Council (the team of economists setting the direction for Canadian interest rates) clearly stated that inflation risks remain too high for comfort.
Why is the BoC holding its rate?
This is due to steep shelter and mortgage interest costs right now, which are the largest contributor to the CPI. However, the council did note that the core inflation metrics the BoC monitors (referred to as the median and trim) have improved slightly to 3%, with the three-month average moving lower. This is notable, and likely the clearest signal the central bank may be preparing to cut rates—but the BoC needs to see more of this trend before it’ll make a downward move.
Is inflation still too high in Canada?
“Based on the outlook, Governing Council decided to hold the policy rate at 5% and to continue to normalize the Bank’s balance sheet,” reads the BoC’s announcement. “While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months. The Council will be looking for evidence that this downward momentum is sustained.”
The BoC also updated its inflation forecast, expecting it to remain at 3% during the first half of 2024, fall below 2.5% in the last six months of the year, and finally dip under the 2% target in 2025.
As this marks the BoC’s sixth consecutive hold, there hasn’t been a change to the prime rate since July 2023. That means the cost of borrowing has sat at a two-decade high for the last nine months—and that certainly has implications for all Canadians. Here’s how you may be impacted, whether you’re shopping for a mortgage, saving a nest egg, or making an investment decision.
What the BoC’s rate hold means if you’re a mortgage borrower
First and foremost: If you’re a variable mortgage holder, you are the most directly impacted by the BoC’s rate direction out of everyone on this list. This is because the pricing for variable products is based on a “prime plus or minus” method. For example, if your variable rate is “prime minus 0.50%,” your variable rate today would be 6.7% (7.2% – 0.50%).
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As a result of this most recent rate hold, today’s variable mortgage holders won’t see any change to their current mortgage payments; those with “adjustable” or “floating” rates will see the size of their monthly payments stay the same. Those with variable rates on a fixed payment schedule, meanwhile, won’t see any change to the amount of their payment that goes toward their principal loan. All variable-rate mortgage holders—and those with HELOCs, too—will continue to experience stability, though these Canadians may be frustrated that the BoC continues to be coy around future rate-cut timing.
There is also little change in store for fixed-rate mortgage borrowers. While not directly impacted by the BoC’s rate decisions, the resulting reaction in the bond market can influence lenders to raise or discount their fixed-rate products. However, given markets had largely baked in today’s hold, there won’t be much fluctuation for fixed rates in the weeks to come. At least, not because of the BoC.
Here how the current rates are being affected:
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What the BoC rate means if you’re an investor
Instead, current volatility in the bond market can be mostly attributed to what’s happening south of the border. Recent labour numbers from the U.S., along with March’s higher-than-expected CPI of 3.5%, are the culprits that have driven yields up to the 3.7% range today. That has yet to translate to fixed-rate increases from Canadian lenders, but this could materialize if markets are further surprised by strong US data.
This means the U.S. Federal Reserve, the American counterpart to the BoC, may have to delay its own plans to cut rates, and investors aren’t happy about this change in sentiment. Stock markets have reacted sharply; for example, the TSX Composite dipped -192.6% Wednesday mid-day from Tuesday’s close. What the BoC means if you’re a property investor
The challenging conditions that have plagued Canadian property investors and landlords won’t ease up as a result of today’s rate hold. As interest rates remain historically high, it continues to be prohibitively expensive for anyone looking to buy a rental property or finance a new build. As mortgage loans for capital projects are always on variable terms, there will be no relief for this group until material rate cuts occur.
However, passive investors should savour these returns for as long as they can, as expectations remain firm that rate cuts will be in store by June or July of this year—if the inflation data falls in line.
MoneySense is an award-winning magazine, helping Canadians navigate money matters since 1999. Our editorial team of trained journalists works closely with leading personal finance experts in Canada. To help you find the best financial products, we compare the offerings from over 12 major institutions, including banks, credit unions and card issuers. Learn more about our advertising and trusted partners.
This article was created by a MoneySense content partner.
This is an unpaid article that contains useful and relevant information. It was written by a content partner based on its expertise and edited by MoneySense.
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.
Look around for better accounts. Chequing will never be high. Tangerine does promotional rates for their savings accounts, where I’m getting 4.7%. EQ Bank is 2.5% for their savings. I’ve seen Simplii had promotional rates as high as 6%. You could get a 1 year GIC in your TFSA for 4.5-5%. If your TFSA lets you buy ETF’s, PSA or CASH offer around 5% yield (their holdings are in high interest savings accounts, so it’s still safe).
The interest rate on my tfsa isn’t even 1%. Where is this magical 5% coming from? Regular chequing accounts with Simplii earn 0.1% interest.
Look around for better accounts. Chequing will never be high. Tangerine does promotional rates for their savings accounts, where I’m getting 4.7%. EQ Bank is 2.5% for their savings. I’ve seen Simplii had promotional rates as high as 6%. You could get a 1 year GIC in your TFSA for 4.5-5%. If your TFSA lets you buy ETF’s, PSA or CASH offer around 5% yield (their holdings are in high interest savings accounts, so it’s still safe).