Published on Aug 16, 2024
A recent report from CIBC Economics forecasts that by June 2025, Canada’s overnight interest rate — the rate that establishes the cost of lending for mortgages and other major loans — will drop to 3.00%, down from the current rate of 4.5%.
In July, the Bank of Canada (BoC) cut its overnight rate for the second consecutive month after four years of rising interest rates that plateaued at 5%.
But now the economic indicators suggest inflation and economic activity is cooling, which means the BoC is likely to continue to cut rates provided that inflation continues to trend towards the BoC’s 2% target.
In a June forecast, CIBC examined economic factors related to Canada’s labour market, including reported labour shortages, and wage growth, two key economic indicators the BoC pays close attention to when setting its interest rates. The June report also noted that economic activity south of the border in the U.S. is likely to have a strong influence on Canadian interest rates.
News of the recent rate cuts comes as a relief to many homeowners who are renewing their mortgage, as well as many homebuyers who are looking to secure a mortgage.
For reference, a 0.5% drop in interest rates could mean hundreds of dollars in savings per mortgage payment, depending on your circumstances, and tools are available to determine how much you can save.
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Note: the above forecast constitutes the expert opinion of CIBC analysts but the variables that affect interest rates are subject to change. We can make no guarantee that these forecasts are correct, and you should consult an expert before making any decisions on the basis of this information.