Are we finally nearing the end of this rate-hike cycle?
Interest rates are front and centre these days, and for good reason. Despite a two-meeting rate pause by the Bank of Canada, the central bank resumed its rate hikes in June, sending interest costs even higher.
The Bank has now hiked its key lending rate nine times for a cumulative total of 4.50 percentage points, or 450 basis points, since March 2022.
For those of you with a variable-rate mortgage or an upcoming renewal, it’s undoubtedly causing you added stress and anxiety. Let’s be honest, nobody likes to pay more interest.
So, how much longer could this rate-hike cycle last?
The good news is we may be nearing the end, according to market and economist forecasts. Of course, forecasts are constantly changing as new economic data becomes available, so nothing is for certain.
What does history tell us about the timing of the first rate cuts?
Once we reach the Bank’s terminal rate—or the peak rate for this cycle—markets and borrowers alike will shift their focus to the timing of the Bank’s first interest rate cuts.
And what can we learn by looking at past rate-hike cycles in Canadian history? Let’s take a look:
It’s important to remember that each cycle is unique, and the specific timing and magnitude of rate increases and cuts can vary. As seen above, the timing between the last rate hike of a cycle and the first rate cut can range anywhere from mere months to several years.
The current outlook
Although the timing of the first rate cuts for this cycle have been pushed out to next year, nobody knows for sure when that will happen due to rapidly changing economic conditions.
Some forecasts from earlier this year initially had rate cuts expected by now. And as BoC Governor Tiff Macklem illustrated in late 2020 when he assured borrowers that interest rates would remain low “into 2023,” even the central bank can get its forecasts wrong.
As mortgage professionals, our job isn’t to pinpoint where rates will be at a specific moment in time, but instead to keep on top of larger trends and help you find the best options given the information we have available.
That’s where I can help. So, if you’re concerned about rising interest costs or worried about an upcoming renewal, please don’t hesitate to contact me so we can review the best solutions for you.