Will the Bank of Canada raise rates again in 2024? Not likely, but it’s possible

Interest rates have been rising steadily across Canada for the past two years. The Bank of Canada has raised its policy rate ten times since March 2022 in an effort to combat runaway inflation.

But with inflation nearing the federal bank’s 2% target rate, many are wondering what to expect this year. Will interest rates continue rising? Or have we finally seen the last of the Bank of Canada’s rate hikes?

Here’s everything you need to know about the interest rate hike predictions for this year.

Do experts expect more rate hikes this year?

The Bank of Canada eased up on its rate hike streak toward the end of 2023. While inflation is still higher than the central bank’s 2% goal — December’s yearly inflation rate was 3.4%, according to the Consumer Price Index — it’s much lower than the 8.1% record high we experienced in June 2022.

Does this mean the Bank of Canada is done hiking rates for the foreseeable future? Possibly. Most economics believe the central bank will continue to hold rates steady until at least June of this year, after which it may make its first rate cut, as long as inflation is still trending downward.

A January Reuters poll showed that 22 out of 34 economists believe the Bank of Canada won’t start cutting rates until at least June of this year — possibly later. They also anticipate a drop of 100 basis points to the Canadian policy rate before the end of 2024.

But that doesn’t mean rate increases are off the table entirely. “Inflation is coming down as higher interest rates restrain demand in the Canadian economy,” said Tiff Macklem, governor of the Bank of Canada at a January 24 press conference. “But inflation is still too high, and underlying inflationary pressures persist. We need to give these higher rates time to do their work.”

The Bank of Canada said in December that it was not yet entertaining the idea of a rate cut. Instead, it was focused on whether rates were raised high enough and how long rates needed to remain high to help significantly reduce inflation.

How many times has the Bank of Canada raised interest rates?

The Bank of Canada first raised its policy rate — the interest rate at which banks and credit unions lend money to one another — on March 2, 2022. It raised rates ten times in total, and has held rates steady six times.

Here’s a breakdown of all of the rate increases and holds the bank has issues in the past two years:

Date

Rate Decision

Policy Rate Range

March 2, 2022

Raised by 0.25%

0.50%

April 13, 2022

Raised by 0.50%

1.00%

June 1, 2022

Raised by 0.50%

1.50%

July 13, 2022

Raised by 1.00%

2.50%

Sept. 7, 2022

Raised by 0.75%

3.25%

Oct. 26, 2022

Raised by 0.50%

3.75%

Dec. 7, 2022

Raised by 0.50%

4.25%

Jan. 25, 2023

Raised by 0.25%

4.50%

March 8, 2023

Held steady

4.50%

April 12, 2023

Held steady

4.50%

June 7, 2023

Raised by 0.25%

4.75%

July 12, 2023

Raised by 0.25%

5.00%

Sept. 6, 2023

Held steady

5.00%

Oct. 25, 2023

Held steady

5.00%

Dec. 6, 2023

Held steady

5.00%

Jan. 24, 2024

Held steady

5.00%

How do rate increases help tame inflation?

When inflation rises above the Bank of Canada’s normal target of 2%, increasing the policy rate is the main course of action the central bank can take to reign in high prices.

How? When the policy rate is raised, banks, credit unions, and other financial institutions generally follow suit, raising the prime rate it uses to help set interest rates for consumer products like credit cards, loans, and mortgages.

As financing becomes more expensive, consumer spending tends to decrease. As consumer demand slows, the costs of items begin to drop, and inflation starts to also come down.

But the Bank of Canada has to tread a fine line. It doesn’t want to lower inflation by too much too quickly, or else it risks slowing the economy too much, leading to a recession and higher levels of unemployment.

Rate hikes and mortgage rates

When inflation is too high and it's clear the central bank is going to raise interest rates, mortgage rates also tend to climb. While the Bank of Canada doesn’t directly impact mortgage rates, when the bank signals that inflationary pressures are rising, lenders typically begin increasing mortgage interest rates in response, often ahead of central bank rate decisions.

Inflation and the bond market

Bond prices and bond yields have an inverse relationship — when one goes up, the other goes down. When the Bank of Canada raises interest rates, interest rates and yields on new bonds also go up, making them a more attractive purchase for consumers. As a result, the prices of existing bonds with lower rates begin to fall.

How the central bank impacts credit card and loan APRs

When the Bank of Canada raises its policy rate, also called the overnight rate, it increases the interest rate banks charge to lend money to one another. Raising its prime rate — which drives consumer interest rates — is one way banks recoup this cost increase.

After ten rate hikes in 2022 through 2023, the policy rate in Canada now sits at 5%. The policy rate is not at 7.2%, which means most loan rates are above 8% annual percentage rate. Credit card rates are generally much higher, ranging between 20% APR and 25.99% APR. That means it’s more expensive to take out a new loan or to carry a balance on your credit card right now.

What is inflation?

Inflation refers to the increase of goods or services and the decrease in the purchasing power of your dollar. A small rate of inflation is a sign of a healthy economy. Without inflation, we wouldn’t experience economic growth. But when inflation rises too quickly — above the central bank’s 2% mandate — that’s when it becomes a problem.

The Bank of Canada is tasked with keeping inflation under control. When inflation began climbing rapidly in 2022, it began raising interest rates to help create a slowing economy, which gives prices a chance to drop.

When will inflation reach 2%

It’s hard to say when Canada’s inflation rate will reach 2%. But it is down significantly from its 8.1% peak in June 2022. The latest inflation report from December showed inflation was down to 3.4% year-over-year. That’s much closer to the 2% goal, though still too high.’

With experts predicting the central bank could begin cutting rates as soon as this June, it’s possible we’ll reach or get closer to the Bank of Canada’s 2% target in the coming months.

But there are no guarantees. It’s also possible that inflation begins rising again. In that case, the central bank would be prepared to make additional interest rate increases, if needed.

Is the US also experiencing high inflation?

Yes, similar to what Canada saw coming out of the COVID-19 global pandemic, the United States also experienced a surge of rising prices in 2022. Like Canada, the US began hiking rates in March 2022. The Federal Reserve — the US central bank — is now holding its federal funds range (its policy rate) between 5.25% and 5.50%.

The US is also expected to start making interest rate cuts later this year, as long as inflation continues to trend downward.

Here’s how rate cuts could impact your money

If all goes as planned and the central banks in Canada and the US are able to lower rates this year, it will play a significant role in your money, since banks and lenders will also likely start cutting rates.

Whether you’re carrying credit card debt, looking to buy your first home, and just trying to pad your savings account, here’s how potential rate cuts in the second half of 2024 could help (and hurt) your bottom line.

Getting a mortgage could become more affordable

If inflation continues to trend downward and it’s likely that the Bank of Canada will reduce its policy rate, expected mortgage interest rates to also start coming down. The decreases will likely be slow, but steady. And even a small decrease in loan amounts could amount to tens of thousands saved in interest over the lifetime of your home loan.

If you’re a current homeowner

If you currently have a fixed-rate mortgage, your rate won’t change. But if you have a high interest rate on your home loan, when rates drop, you might consider refinancing to lock in a lower rate that can help you lower your monthly payments, and also reduce the amount of interest you pay each month.

And if you have a variable rate mortgage, rate drops are also good news for you. Expect your mortgage rate to drop, hopefully reducing your monthly payment — keeping more money in your bank account.

If you’re a prospective homeowner

Many potential homeowners are waiting to pull the trigger on buying a new home until the housing market becomes more affordable. Lower mortgage rates could make it easier for prospective buyers who feel locked out of the market to become homeowners.

But it’s also possible that lower mortgage rates push housing demand back up — which could lead to home prices rising even more. So it’s important to be aware of how much house you can afford, regardless of what happens to interest rates.

Credit card debt may become more manageable

Right now, if you carry a balance on your credit card, it’s likely difficult to dig your way out of high interest payments. With payments around 20% APR (or higher), if you can’t afford to pay off your card balance in full, your interest payments can significantly eat into your budget.

Rate hikes could help ease some of this pressure. If the central bank lowers its policy rate, banks and card issuers are likely to start dropping APRs.

That won’t ease credit card debt entirely, though. Credit card APRs are generally higher than most other financing options. Regardless of where rates move, it’s important to begin chipping away at your credit card debt sooner, rather than later.

Consolidating your debt into one monthly payment, taking advantage of a 0% introductory credit card balance transfer offer, or paying more than the minimum to attack your credit card balances are all strategies worth considering, whether interest rates go up or down.

Personal loans and other financing will be less expensive

If you’re in need of a personal loan or line of credit, today’s current high interest rates may have given you pause. However, if the policy interest rate drops, lenders are likely to lower their interest rates as well. That means you’ll be able to lock in a lower interest rate on a personal loan product.

The same goes for vehicle loans. With APRs expected to drop when the central bank’s key rate dips, financing a vehicle may become more affordable toward the end of this year.

What do rate drops mean for your savings?

Savings rates in Canada have been historically high recently, particularly over the past year. The plus side of rate increases is that savings interest rates also tend to rise, helping you earn more money on anything you’re storing in an interest-bearing account. Taking advantage of high savings rates can help you protect some of your money during periods of high inflation.

A high interest savings account in Canada can earn you upwards of 5% annual percentage yield right now. And many retirement plans and other savings options are currently also offering higher than average APYs. And with rate cuts not expected until the summer, that means high savings rates will stick around for a while.

But savings rates are likely to drop in the latter half of this year. However, with the central bank expected to lower its policy interest rate by a total of 1% this year, that means it’s possible savings rates will only decrease slightly.

If you’re not already earning a competitive rate on your savings, now is the time to do so before rates begin to teeter.

Consider opening a high interest savings account

This type of savings account allows you to earn a competitive interest rate on your money. It also offers easy access to your funds, making it a great vehicle for storing bucks for an emergency fund, short-term financial goals, and more.

You can find interest rates from 5% or higher at online banks and credit unions. KOHO, a company that helps your build your credit score, has a combined spending and savings account that offers up to 5% APY on your savings. This account is CDIC insured, offers overdraft protection coverage, free access to your credit score, virtual credit card access, and has no NSF fees.

Earn more on existing savings with a GIC

A guaranteed interest certificate, or GIC, lets you lock in a fixed-rate on your savings, as long as you're comfortable depositing your money in a bank account for a period of time. Unlike savings accounts which have variable interest rates that can change at any time, when you open a GIC, you solidify your savings rates.

If you have money earmarked that you won’t need for several months or years, consider opening a GIC so you can lock in a high rate now, before rates fall in the coming months.

Don’t overlook tax-free savings accounts and retirement plans

A tax-free savings account and other retirement accounts in Canada that offer tax advantages can also earn interest, depending on how you invest your portfolio. If you’re not already capitalizing on high interest rates by investing some of your funds in savings account options, talk to a financial advisor to see if this is a smart money move for you.