With no Bank of Canada rate decision scheduled for August, we turn our attention to Canada’s COVID-riddled recovery.

The future path of our economic recovery remains largely unknown and highly dependent on how well we can keep infections at bay.

So far so good, however. According to the latest data, Canada’s recovery is outperforming multiple nations. GDP numbers today show the economy expanding about one percentage point faster than expected, which is meaningful in a $2.3 trillion economy.

The following is a sampling of sound bites and predictions about Canada’s emergence from the pandemic. This all has implications for the price you’ll pay on your next mortgage. The faster the rebound, the faster rates rebound.

RBC Economics

  • “Significant government support underpinned plenty of pent-up demand as restrictions have been relaxed. But the path forward remains fraught with risks. Look no further than the United States, where easing of physical distancing measures resulted in the number of infections accelerating in many states.” (Source)
  • “Canada’s economic contraction ended in April, with a flattening case curve allowing for a gradual re-opening in May and June. The early rebound has been strong, but gains in the second half of the year won’t be as easy to come by.” (Source)

TD Economics

  • “Timely economic indicators in Canada broadly point to a recovery that remains intact heading into Q3.” (Source)

Capital Economics

  • “The renewed rise in Covid-19 case growth is not yet a big cause for concern, but there is clearly a risk that a second wave of infections will cause further economic disruption later this year.” (Source)

National Bank of Canada

  • “Our forecast assumes that even if a second wave of COVID-19 arrives, measures to combat it will be much more targeted than the across-the-board lockdown decreed in response to the first wave.” (Source)

The Takeaway

Our economy is dragging itself off the ground, slowly but surely. The inflation threat over the next year is therefore minimal – meaning the odds of Bank of Canada rate hikes before 2022 are minimal.

Five-year bond yields, which influence fixed mortgage rates, are also anchored near zero with our government planning to buy billions of 5-year bonds into 2021 in order to keep rates low.

For now, it’s steady as she goes in the rate market with limited upside and limited downside likely through 2021.

Latest Rates & Forecasts

  • Bank of Canada Overnight Rate: 0.25% [1]
  • Bank of Canada Estimated Neutral Rate: 2.50% [2]
  • BoC Rate Cuts Priced in this Year: Almost zero per cent chance of an additional cut by year-end [3]
  • Prime Rate: 2.45% [4]
  • Prime Rate Forecast (Consensus forecast at year-end 2021): 2.45% [5]
  • Average Canadian 5-year Fixed Rate: 1.99% [6]
  • 5-year fixed rate (Consensus forecast at year-end 2021): 2.32% [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 usually 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).


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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