Are We Near the End of This Rate Hike Cycle

Are we finally nearing the end of this rate-hike cycle?

Interest rates are front and centre these days, and for good reason. Despite a two-meeting rate pause by the Bank of Canada, the central bank resumed its rate hikes in June, sending interest costs even higher.

The Bank has now hiked its key lending rate nine times for a cumulative total of 4.50 percentage points, or 450 basis points, since March 2022.

For those of you with a variable-rate mortgage or an upcoming renewal, it’s undoubtedly causing you added stress and anxiety. Let’s be honest; nobody likes to pay more interest.

So, how much longer could this rate-hike cycle last? 

The good news is we may be nearing the end, according to market and economist forecasts. Of course, forecasts are constantly changing as new economic data becomes available, so nothing is for certain.

What does history tell us about the timing of the first rate cuts?

Once we reach the Bank’s terminal rate—or the peak rate for this cycle—markets and borrowers alike will shift their focus to the timing of the Bank’s first interest rate cuts.

And what can we learn by looking at past rate-hike cycles in Canadian history? Let’s take a look:

• 2004 to 2007: The Bank of Canada gradually increased its key interest rate from 2.50% to 4.50% to rein in strong economic growth and concerns about inflation. It took five months after the last rate hike for the Bank to start cutting rates in response to the global financial crisis. The rate cuts continued until 2009, bringing the interest rate down to 0.25%.
• 2010 to 2011: In response to improving economic conditions and concerns about rising household debt, the Bank raised its key interest rate from 0.25% to 1.00% during this period. In this case, over four years passed before rate cuts began in early 2015.
• 2017 to 2018: The BoC raised its benchmark rate from 0.50% to 1.75% to combat strong economic growth and inflation. It wasn’t until 2020, in response to the COVID-19 pandemic, that it aggressively cut rates to support the economy.

It’s important to remember that each cycle is unique, and the specific timing and magnitude of rate increases and cuts can vary. As seen above, the timing between the last rate hike of a cycle and the first rate cut can range anywhere from mere months to several years.

The current outlook

Although the timing of the first rate cuts for this cycle have been pushed out to next year, nobody knows for sure when that will happen due to rapidly changing economic conditions.

Some forecasts from earlier this year initially had rate cuts expected by now. And as BoC Governor Tiff Macklem illustrated in late 2020 when he assured borrowers that interest rates would remain low “into 2023,” even the central bank can get its forecasts wrong.

As mortgage professionals, our job isn’t to pinpoint where rates will be at a specific moment in time, but instead to keep on top of larger trends and help you find the best options given the information we have available. 

Charlene Demchuck-Nelson
Mortgage Agent
(403) 874-1984
charlene.demchuck-nelson@mortgagegroup.com