ZOLO Ottawa Real Estate

Fixed mortgage rates have been rising steadily since late last year, but this week it’s variable-rate holders who are expected to see their first rate hike since October 2018.

The Bank of Canada is widely expected to increase its overnight target rate on Wednesday morning. Despite the market uncertainty unleashed by the current geopolitical crisis in Ukraine, the Bank’s hands appear to be tied given the headline inflation in January soared to a 30-year high of 5.1%.

The target rate, upon which prime rate and variable-rate mortgages are priced, has been at 0.25% since March 2020, when the Bank cut rates at an emergency meeting at the start of the pandemic.

Here’s a look at what some economists and analysts are saying in the lead-up to one of the most highly anticipated Bank of Canada meetings in years.

On the pace of rate hikes


“The BoC is positioned to execute on a relatively swift rate hiking cycle. We see it front-loading rate hikes such that the policy rate reaches above 1% by this summer and hits 1.75% in early 2023. This endpoint of 1.75% is at the bottom of the BoC’s range for the neutral rate of interest.” (Source)


“Moving forward, households will have ample purchasing power for spending…backed by sharply improved labour market prospects and elevated savings. The wind-down of virus containment measures will support further recovery in demand for hospitality and travel services. And the heated housing market and rising energy prices that have driven price growth to-date are expected to remain elevated, at least in the near term. Against that backdrop, the Bank of Canada is widely expected to begin hiking interest rates in March and we could see a follow-up hike as soon as April.” (Source)


“Wednesday’s rate hike will be the first of many (five in our estimation) this year as the BoC finds itself on the back foot in its fight against above-target inflation. There’s undoubtedly a very strong case to be made for going big with a 50-basis-point move, but we’ve not seen enough from the BoC to suggest that’s coming.” (Source)

Edge Realty Analytics

“I don’t believe the Russia-Ukraine situation will fundamentally alter the Bank’s path going forward. Expect a 0.25% rate hike [this week], with likely another two to three hikes before the end of the year. The calls for six to eight hikes still strike me as very unlikely.” (Source)

On increase rate sensitivity


“Just like in the U.S., there is a level of rates in Canada that can cause policy to become restrictive. With the increase in household debt, the sensitivity to higher interest rates has likely increased. This makes the upcoming hiking cycle even more precarious, which will force the BoC to pay closer attention to how the economy responds to its dual policy action.” (Source)

On quantitative tightening

“[The BoC’s] intentions on the balance sheet are much less predictable, especially since this is the Bank’s first experience with QE/QT (quantitative easing/quantitative tightening). In the past year or so, it has tended to land on the hawkish side of expectations on the balance sheet moves. Indeed, Deputy Governor Lane recently suggested that the BoC could end reinvestment and be on the path to QT at [this week’s] meeting.”

Latest big-bank interest rate forecasts

The following are the latest interest rate and bond yield forecasts from the Big 6 banks, with any changes from their previous forecasts in parenthesis.

  Target Rate:
Year-end ’22
Target Rate:
Year-end ’23
Target Rate:
Year-end ’24
5-Year BoC Bond Yield:
Year-end ’225-Year BoC Bond Yield:
Year-end ’23
BMO 1.50% (+25 bps) 2.00% (+25 bps) NA 1.95% (+20 bps) 2.25% (+25 bps)
CIBC 1.25% (+25 bps) 1.75% NA NA NA
NBC 1.50% 1.75% NA 2.00% (+10 bps) 2.05% (15 bps)
RBC 1.25% (+25 bps) 1.75% NA 1.85% (+20 bps) 2.10% (+15 bps)
Scotia 2.00% 2.50% NA 2.50% 2.60%
TD 1.50% (+25 bps) 1.75% NA 2.10% (+10 bps) 2.00% (-5 bps)

Article feature image: David Kawai/Bloomberg via Getty Images

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