Introduction to Bank of Canada’s Interest Rate Update
The Bank of Canada is set to announce its first interest rate update of the year on January 28. This update is highly anticipated as it will provide insight into the country’s economic outlook and potential changes in interest rates.
Background on Interest Rates
In December, the Bank of Canada held the key interest rate at 2.25 per cent, citing slowing inflation in October as the primary reason. The inflation rate in October was 2.2 per cent, which is attributed to decreased gas prices and slower growth in food prices. The Bank of Canada stated that if inflation and economic activity continue to evolve as projected, the current policy rate is at an appropriate level to maintain inflation close to 2 per cent while supporting the economy through its current period of structural adjustment.
Predictions for the Upcoming Rate Announcement
Penelope Graham, a mortgage expert from Ratehub.ca, shared her predictions for the upcoming interest rate announcement. Graham noted that the Bank of Canada has indicated it will hold rates for an extended period, a stance it reinforced in its December rate announcement. The December inflation data, which showed a 2.4 per cent gain, supports this stance. However, Graham pointed out that the Bank’s preferred core measures of inflation actually improved, indicating that underlying inflation is cooling.
Potential for Rate Cuts
If the trend of cooling inflation continues and the economy shows signs of weakening, the Bank of Canada may be in a position to cut rates later this year. Graham emphasized that while price growth may be stubborn in the short term due to year-over-year baseline effects, the underlying signs are positive.
Impact on Mortgage Rates and Housing
The potential changes in interest rates can significantly impact mortgage rates and the housing market. Despite real estate sales improving on a monthly basis in the second half of 2025, last year was a challenging time for Canada’s housing market, with Toronto and Vancouver recording two-decade lows in activity. The lack of buyer confidence due to economic uncertainty was a major factor contributing to this decline.
Current Mortgage Rates
Mortgage holders can currently benefit from the low rates resulting from the Bank of Canada’s cuts between 2024 and 2025. Five-year variable mortgage rates are as low as 3.45 per cent, a price not seen since the summer of 2022. Fixed mortgage rates are also below the four per cent mark, with the best insured five-year option at 3.84 per cent. Graham advised that individuals shopping for a mortgage should compare their options carefully, especially if they are renewing their term from one of the historically low rates available during the pandemic, as small reductions in rate can result in significant savings over the course of the mortgage term.
Conclusion
In conclusion, the upcoming Bank of Canada interest rate update on January 28 will be closely watched for its implications on the economy, interest rates, and the housing market. While the Bank has indicated it will hold rates for an extended period, there is potential for rate cuts later this year if inflation continues to cool and the economy weakens. Mortgage holders and those shopping for mortgages can benefit from the currently low rates, making it an essential time to compare options and make informed decisions about their mortgage terms.
