CIBC & First National forecasts ‘supersized’ Bank of Canada rate cut by year end

Major Canadian banks have lately modified their rate projections, expecting the Bank of Canada to lower rates more quickly and deeply in response to the growing economic difficulties.

Additionally, the banks project notable declines in 5-year bond yields; by the end of 2025, BMO and National Bank both estimate a reduction of 2.55%. Compared to the current 5-year Government of Canada bond yield of 2.71%, this represents a significant decrease. This could result in lenders continuing to cut rates for these products, since bond yields normally have an impact on fixed mortgage rates.

Over the next two years, it is anticipated that over two million mortgages—nearly half of all Canadian home loans—will be due for renewal, many of which were initially obtained at historically low interest rates. According to estimates from the Canada Mortgage and Housing Corporation (CMHC), typical monthly mortgage payments might increase by 30–40%, putting more strain on borrowers' finances.

Headline CPI has eased to 2.5%, indicating that inflation is almost under control. However, Avery Shenfeld, chief economist at CIBC, warns that the central bank may cut rates more quickly if it becomes concerned about weakening economic circumstances.

Only two of the Big Six banks, CIBC and National Bank, are presently projecting that the Bank of Canada's policy rate will fall to 3.50% by year's end. Reaching 3.50% would require at least one 50-basis-point (0.50%) rate drop during one of the two remaining rate decision meetings this year, considering the rate is now at 4.25%.

Fingers crossed to see what happens by the end of this year.

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