This month we won’t focus on where the Bank of Canada’s key lending rate is going. The next BoC rate decision isn’t until June 3 and no economists foresee a change.

Instead, we look at how the ongoing COVID-19 pandemic could hammer economic performance in the next year. The implication is that things are so dismal, despite government intervention, that there is negligible chance of rate hikes through 2021.

It’s an environment made for short-term fixed rates near 2% or variable mortgage rates below 2%. If you can find either, you’ll likely be well ahead of the game.

Just be sure you can handle the mental and financial cost of potentially higher rates. While no one’s predicting it, there’s always the small possibility that inflation picks up sooner than expected, which would drive rates higher than anticipated in the next few years.

All that said, judge for yourself by the economist predictions below. Indeed, slow or negative economic growth implies ultra-low mortgage rates for several quarters to come…

TD Economics

  • “…As of April 16th, nearly 8 million applications for the Canada Emergency Response Benefit (CERB) had been received, suggesting that fears of an even greater deterioration in the labour market have been realized.”
  • “As in the U.S., we expect a contraction of over 40% annualized” in second-quarter real GDP.
  • “…Even [with extraordinary federal and Bank of Canada measures], a full return to normal will take time.” (Source)

RBC Economics

  • RBC is projecting current shutdowns and social distancing to remain in place “for at least another two months and will only gradually be scaled back in June and July.”
  • “Based on claims for employment insurance and other benefits, Canada’s unemployment rate is likely nearing 20%.”
  • “In both Canada and the U.S., we think GDP declines in Q2 will exceed 30% on an annualized basis. For reference, neither country has seen a quarterly decline of more than 10% in over half a century of record keeping.” (Source)
  • “We think the significant fiscal support that has been announced (generally 2-5% of GDP, and in some cases even more) will prevent a worst-case scenario from materializing, and underpin an eventual economic recovery. But we don’t think it will be the hoped-for V-shaped recovery—that is, a quick and nearly full rebound in activity.” (Source)
Economic forecasts.jpg

Capital Economics

  • “…We think that house price declines are very likely this year, however…We are therefore pencilling in a 5% fall in nationwide house prices in the next six months, although some cities, such as Toronto, are likely to fare worse.”
  • “Even with the substantial policy support announced so far…the decline in GDP from February to April will be [an estimated] 23%, compared to our previous estimate of 15%, and we now expect the second-quarter contraction to be 45% annualized.”

CIBC Economics

  • “The scale of job losses expected in the coming months suggests that household spending will remain weak in the near term, even once social distancing is relaxed. The effects of fiscal measures and monetary policy stimulus on the economy will not become evident until containment measures begin to be eased gradually this summer. Even then, open capacity and still weak demand is expected to limit business investment.” (Source)

Latest Rates & Forecasts

  • Bank of Canada Overnight Rate: 0.25% [1]
  • Bank of Canada Estimated Neutral Rate: 2.25% to 3.25% [2]
  • BoC Rate Cuts Priced in this Year: Approx. zero chance of any rate movement by year-end [3]
  • Prime Rate: 2.45% [4]
  • Prime Rate Forecast (Consensus forecast at year-end 2021): 2.70% [5]
  • Average Canadian 5-year Fixed Rate: 2.49% [6]
  • 5-year fixed rate (Consensus forecast at year-end 2021): 2.61% [7]


[1] The overnight rate is the interest rate the Bank of Canada uses to control inflation. It raises the overnight rate to slow inflation and vice versa. The overnight rate is the #1 determinant of prime rate, the basis for variable-rate mortgages.

[2] The neutral rate is the theoretical Bank of Canada overnight rate that neither boosts nor restrains economic growth. It’s updated every April.

[3] This is the implied number of Bank of Canada rate changes based on prices of overnight index swaps (OIS). OIS are bond market derivatives that traders use to bet on the direction of interest rates.

[4] Prime rate is tracked by the Bank of Canada. It equals the typical (mode average) prime rate of the six largest Canadian banks.

[5] This figure equals the year-end 2021 overnight rate forecast from major economists (as tracked by Bloomberg) plus a 220-basis point spread (which is the current spread between prime rate and the overnight rate).

[6] As of the date of this publication, as tracked by RateSpy.com

[7] This figure equals the year-end 2021 5-year Government of Canada bond yield forecast from major economists (as tracked by Bloomberg) plus a 150-basis-point spread (which is the typical spread between the 5-year yield and average 5-year fixed rates).

RATESDOTCA Team

The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

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