As widely expected, the Bank of Canada (“BoC”) increased its overnight rate on October 24 to 1.75% — the highest rate in
nearly a decade. This marks the fifth rate hike since July 2017, when the BoC began raising overnight rates, and compares
to eight rate hikes from the US Federal Reserve Board (“the Fed”), which began raising its target range in December 2015.
Notably, the BoC indicated that future rate hikes will no longer be “gradual”. And while their guidance on the pace of rate
hikes was less explicit, the destination is now clearer — the overnight rate “will need to rise to a neutral stance” to keep
inflation on target, which it pegs at 2.5–3.5%.
Looking forward, RBC Economics’ believes that a move in December is unlikely, however, the BoC’s more hawkish
tone provides a strong indication that rates will rise again early next year. Based on RBC Economics’ forecast and our
expectations for generally range-bound loan spreads, the nominal cost of a five-year mortgage appears likely to continue to
grind higher over time.
Download the Q3 2018 Report.
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