Blog > Bank of Canada cuts Prime Rate by 0.25% – What about fixed rates?


Hey friends and clients!

Last week we got a sign of relief of inflation and high interest rates when the Bank of Canada dropped the overnight rate/prime rate by 0.25%. Prime rate was at 7.2% and is now 6.95%, affecting variable, adjustable rate mortgages and HELOC’s in a positive way!

This doesn’t mean that there is a change to fixed rates directly, as they are directly affected by the Canadian Bond Yield.

With that said, they do follow a similar path! We have seen fixed rates drop as much as 2% on 5 year fixed rates since 12-18 months ago. Rates were over 6.5% at one point, and we are now under 5% in most cases on 5 year fixed rates.

This trend is likely to continue! If you have your renewal coming up, please let us help with shopping as the rates are dropping every other week right now on fixed rates! If you got an auto rate quote from your bank or lender and its 2 weeks or older, there is a chance it is even lower now.

Here is what our Chief Economist at Dominion Lending Centres had to say: 

A collective sigh of relief as the BoC cut rates for the first time in 27 months.

Today, the Bank of Canada boosted consumer and business confidence by cutting the overnight rate by 25 bps to 4.75% and pledged to continue reducing the size of its balance sheet. The news came on the heels of weaker-than-expected GDP growth in the final quarter of last year and Q1 of this year, accompanied by CPI inflation easing further in April to 2.7%. “The Bank’s preferred measures of core inflation also slowed, and three-month measures suggest continued downward momentum. Indicators of the breadth of price increases across components of the CPI have moved down further and are near their historical average.”

With continued evidence that underlying inflation is easing, the Governing Council agreed that monetary policy no longer needs to be as restrictive. Recent data has increased our confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain. “Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”

As shown in the second chart below, the nominal overnight rate remains 215 basis points above the current median CPI inflation rate, which shows how restrictive monetary policy remains. The average of this measure of real (inflation-adjusted) interest rates in the past 30 years is just 60 bps. The overnight rate is headed for 3.0% by the end of next year.


Bottom Line

There are four more policy decision meetings before the end of this year. It wouldn’t surprise me to see at least three more quarter-point rate cuts this year. While the overnight rate is likely headed for 3.0%, it will remain well above the pre-COVID overnight rate of 1.75% as inflation trends towards 2%+ rather than the sub-2% average in the decade before COVID-19.



If you have any more questions along the way, I am here to help. Reach out to me anytime for help 🙂

Graham Reimer

DLC Mortgage Excellence


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