The End of Prime Rate Increases, January, 2024, Canada

Horray, today The Bank of Canada didn’t just put rate hikes on the back burner today; it unplugged the stove!

The Bank is now “confident enough” that inflation is on the right track to not publicly dwell on rate hike risk any longer. That was today’s message from Senior Deputy Governor Carolyn Rogers after the BoC left its overnight rate at 5%.

Instead, the Bank says it’s now shifting its focus to “how long” the overnight rate needs to marinate “at the current level.”

Summary:

No more increases to the Canadian Prime Rate of Interest – at 7.2% today, after 10 increases in 2023.

Back in August I said Prime should start to come down in June – still the best guess – and

will come down by o.25% every 3 months, so one-quarter-percent decrease every calendar / fiscal quarter (3 months)

for a total of 2% less than today so … Prime should end up at 5.2% in 30 months, which is June 2026.

Mortgage Mark Herman, top Calgary Alberta and BC mortgage broker

“We need to give these higher interest rates time to do their work,” Macklem said, offering no clues on how long he’ll let the rate hike stew simmer. The forward market thinks it’ll take another 4 – 6 months. Historically, rates have plateaued at peak levels for anywhere from a few months to 17 months. So far, it’s been only 6.

The Bank says that higher rates can’t be completely ruled out, but it’s very rare for the Bank of Canada to hike a bunch, pause 5+ months, hike more, pause 5+ months more, and then hike again.